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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

 

 

 

¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: March 31, 2013

OR

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨	SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report:                     

For the transition period from:                      to                     

Commission file number: 001-10086

 

VODAFONE GROUP PUBLIC LIMITED COMPANY

(Exact name of Registrant as specified in its charter)

 

England

(Jurisdiction of incorporation or organization)

 

Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England

(Address of principal executive offices)

Rosemary Martin (Group General Counsel and Company Secretary)

tel +44 (0) 1635 33251, fax +44 (0) 1635 580 857

 

Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class		Name of each exchange on which registered
See Schedule A		See Schedule A

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Ordinary Shares of 11 3/7 US cents each			48,918,618,465
7% Cumulative Fixed Rate Shares of £1 each			50,000

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

Yes  þ    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  ¨    No  þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  þ		Accelerated filer  ¨		Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

US GAAP  ¨		International Financial Reporting  þ		Other  ¨
		Standards as issued by the
		International Accounting
		Standards Board

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow

Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No   þ

 

 

SCHEDULE A

 

Title of each class		Name of each exchange on which registered
Ordinary shares of 11 3/7 US cents each		NASDAQ Global Select Market*
American Depositary Shares (evidenced by American Depositary Receipts) each representing ten ordinary shares		NASDAQ Global Select Market
5.00% Notes due December 2013		New York Stock Exchange
4.150% Notes due June 2014		New York Stock Exchange
5.375% Notes due January 2015		New York Stock Exchange
5% Notes due September 2015		New York Stock Exchange
3.375% Notes due November 2015		New York Stock Exchange
0.9% Notes due February 2016		New York Stock Exchange
Floating rate Notes due February 2016		New York Stock Exchange
2.875% Notes March 2016		New York Stock Exchange
5.75% Notes March 2016		New York Stock Exchange
5.625% Notes due February 2017		New York Stock Exchange
1.625% Notes due March 2017		New York Stock Exchange
1.25% Notes due September 2017		New York Stock Exchange
1.5% Notes due February 2018		New York Stock Exchange
4.625% Notes due July 2018		New York Stock Exchange
5.450% Notes due June 2019		New York Stock Exchange
4.375% Notes due March 2021		New York Stock Exchange
2.5% Notes due September 2022		New York Stock Exchange
2.95% Notes due February 2023		New York Stock Exchange
7.875% Notes due February 2030		New York Stock Exchange
6.25% Notes due November 2032		New York Stock Exchange
6.15% Notes due February 2037		New York Stock Exchange
4.375% Notes due February 2043		New York Stock Exchange

 

*	Listed, not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

 

 

 

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Vodafone Group Plc Annual Report on Form 20-F for the year ended 31 March 2013 The way ahead… introducing Vodafone
2015

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We are a global communications business giving people the power to connect with each other – and to learn, work, play, be entertained and broaden their horizons – wherever and however they choose. Our business is constantly evolving to adapt to changes in customer behaviour, technology, regulation and the competitive landscape. Vodafone 2015 is our response to these changes: how we maximise new opportunities and defend ourselves against new challenges. This constitutes the annual report on Form 20-F of Vodafone Group Plc (the ‘Company’) in accordance with the requirements of the US Securities and Exchange Commission (the ‘SEC’) for the year ended 31 March 2013 and is dated 7 June 2013. This document contains certain information set out within the Company’s annual report in accordance with International Financial Reporting Standards (‘IFRS’) and with those parts of the UK Companies Act 2006 applicable to companies reporting under IFRS, dated 21 May 2013, as updated or supplemented if necessary. The content of the Group’s website (www.vodafone.com) should not be considered to form part of this annual report on Form 20-F.

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		01		Vodafone Group Plc   Annual Report 2013

 

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02		Vodafone Group Plc   Annual Report 2013

 

Promoting women Our commitment to promoting greater female representation at board level was recently recognised by a leading Media award, “Breaking the Mould” where Vodafone was named overall winner of its 2013 award. Today 20% of our senior leadership are women, up from 17% two years ago. Turn to page 34 for more on our people.

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		03		Vodafone Group Plc   Annual Report 2013

 

 

 

More on: Key performance indicators Pages 18 and 19 We have seen mixed trends in our business this year, with a difficult macroeconomic environment and regulatory pressure affecting many of our European businesses, strong growth in emerging markets and an excellent performance from our US associate. Resilient performance £44. 4bn -4.2% £6.7bn +7.5% Group revenue Data revenue Group revenue decreased -4.2% to £44.4 billion as strong demand Data revenue increased 7.5%, or 13.8%* on an organic basis, reflecting for data services and growth in emerging markets were offset by increased smartphone penetration and further take-up of integrated continued significant economic and regulatory pressures in Europe. voice, SMS and data plans. £12.0bn +3.7% £5.6bn -8.1% Adjusted operating profit Free cash flow Adjusted operating profit was up 3.7% at £12.0 billion, and above Free cash flow of £5.6 billion was within our guidance range. The decline our guidance range, as a result of a strong contribution from our reflected the relative strength of sterling against several currencies over US associate, Verizon Wireless. the course of the year, as well as tough trading conditions. 29.9% -1.3pp 10.19p +7.0% Adjusted EBITDA margin Total ordinary dividends per share Reported adjusted EBITDA margin fell -1.3 percentage points. Excluding Final dividends per share of 6.92 pence, giving total dividends per share restructuring costs and on an organic basis margin was down of 10.19 pence, up 7.0% year-on-year, in line with our target. -0.1* percentage points, as the impact of steep revenue declines in Southern Europe offset improving margins in India and Vodacom. £6.3bn -1.6% 15.65p +5.0% Capital expenditure Adjusted earnings per share Capital expenditure was stable at £6.3 billion as we continued Adjusted earnings per share was up 5.0% at 15.65 pence, driven to maintain a significant level of investment to extend our high by growth in adjusted operating profit and a lower share count speed mobile data coverage across our footprint. as a result of share buybacks.

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04		Vodafone Group Plc   Annual Report 2013

 

Emerging markets Today, most of our revenue comes from mature European markets, where most people have a phone, but economic and regulatory pressures are limiting growth. Our future is increasingly in emerging markets, such as India and parts of Africa, where mobile penetration is low, GDP growth is high and mobile internet usage on smartphones is beginning to take off. Today around one third of revenue comes from emerging markets and going forward it is likely to be more. Maximising our reach… We are one of the world’s largest mobile communications companies. We serve 404 million customers, employ over 91,000 people and operate in over 30 countries. To extend our reach beyond the companies we own, we also participate in partner market agreements in around 50 additional countries.

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		05		Vodafone Group Plc   Annual Report 2013

 

Global footprint Africa, Non-Controlled Northern Middle East and Interests and and Central Southern Asia Pacific Common Equity interests Europe Europe (‘AMAP’) Functions Revenue1 £20.1bn £10.5bn £13.5bn £0.5bn Operating free cash flow £3.3bn £2.3bn £2.5bn £0.5bn Adjusted operating profit £2.1bn £1.8bn £1.7bn £6.4bn Countries Czech Republic Albania Australia Verizon Wireless2 Germany Greece Egypt Hungary Italy Fiji Ireland Malta Ghana Netherlands Portugal India Romania Spain Safaricom (Kenya)2 Turkey New Zealand United Kingdom Qatar Vodacom3 Our main markets Germany UK Vodacom3 32 million mobile customers 19 million mobile customers 59 million mobile customers Our largest market, generating annual revenue We have a 25% service revenue market share in the UK, We own 65% of Vodacom which covers five countries of £7.9 billion. We have a leading position with 35% and are a leading player among enterprise customers. in Africa – South Africa, Tanzania, Mozambique, Lesotho, service revenue market share. This was our first market During the year we acquired Cable & Wireless Worldwide and the Democratic Republic of Congo. In South to launch our ultra-fast 4G services which are now plc (‘CWW’); and we invested £803 million in spectrum Africa, which accounts for 84% of Vodacom’s revenue, available to around 61% of the population. to support the launch of ultra-fast 4G services later we launched the country’s first commercial 4G service in 2013. in October 2012. Spain India Verizon Wireless (‘VZW’)2 14 million mobile customers 152 million mobile customers 99 million mobile customers5 The severe recession combined with intense competition has led to falling revenue in Spain. However we remain Our largest market measured by customers. We have We own 45% of VZW, the largest mobile operator in the confident in the country’s future prospects and therefore a strong brand position, an extensive range of distribution US by revenue. Its leading 4G network now covers around we plan to co-invest €1 billion with another operator, outlets and nationwide network coverage. As a result, 90% of the US population. VZW continued to trade well to deploy a high speed fibre network. our revenue market share has increased every year over delivering further market share gains and strong service the last four years and now stands at over 21%4. revenue growth of 8.1%*. Italy 29 million mobile customers5 We are the largest mobile operator in Italy with a 35% service revenue share. A combination of economic, competitive and regulatory pressures has led to a decline in revenue during the year, but due to careful cost control we have maintained a good level of profitability. Notes: 1 The sum of these amounts do not equal Group totals due to inter-company eliminations. 2 Associate. 3 Includes South Africa, Tanzania, Mozambique, Lesotho, and the Democratic Republic of Congo. 4 At December 2012. 5 Represents the Group’s interest on a 100% owned basis. Based on equity interests the Group’s customer base is 22 million in Italy and 45 million in VZW. To see more information on our markets follow this link vodafone.com/investor

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06		Vodafone Group Plc   Annual Report 2013

 

 

It’s been a busy year. We have launched our new Vodafone Red proposition, bought valuable spectrum to develop 4G services and acquired two major fixed line businesses, and that’s not all An eventful year… April The acquisition of Cable & Wireless Worldwide in the UK was announced. November November October Our Kenyan associate company, Safaricom, 4G services launched in Romania. 4G services launched in South Africa launched M-Shwari, a mobile banking service and Italy. which offers savings and loans to customers. December December December We acquired new spectrum in auctions We received a £2.4 billion dividend from 4G services launched in Greece. in the Netherlands for £1.1 billion. our 45% owned business in the US, VZW.

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		07		Vodafone Group Plc   Annual Report 2013

 

 

June June July Vodafone and O2 announced a network We announced new innovative roaming We announced plans to acquire sharing deal in the UK, allowing us to reach propositions in Europe including calls, TelstraClear, the second largest fixed 98% population coverage by 2015. texts and mobile internet access for operator in New Zealand. €3 or €4 a day. £3.2bn September September August First launch of Vodafone Red plans providing Vodafone and Zain Group announced a We paid a 6.47 pence per share final unlimited voice, texts and generous data multi-country partner market agreement, dividend, amounting to £3.2 billion, bundles in the UK. expanding Vodafone’s presence through re-confirming our position as one of the partner markets to around 50 countries. largest dividend payers in the FTSE. 1.5bn £1.6band December/February February March We commenced a £1.5 billion share We acquired new spectrum in auctions held We announced plans to invest €1 billion, buyback programme in December and paid in the UK for £803 million in order to launch jointly with Orange in Spain, to deploy a high an interim dividend per share of 3.27 pence, 4G services later in the year. speed fibre network to six million homes amounting to £1.6 billion in February. and businesses.

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08		Vodafone Group Plc   Annual Report 2013

 

More on: Strategy and Vodafone 2015 Pages 24 to 33 Our strategy adapts to fit to, and shape, a fast-moving environment. But at its heart is our consistent commitment to differentiation through investment in our network and services. Adapting in a dynamic market… Short-term Long-term growth Our response: challenges opportunities Vodafone 2015 A very tough regulatory environment, We expect smartphone adoption to accelerate Our Vodafone 2015 strategy reflects particularly in Europe and India, combined with in all markets over the next three years, with our confidence in the future. This significant macroeconomic pressures in many mobile applications and low cost smartphone is based on a new strategic approach of our markets, mean that it is currently hard availability increasing everywhere. With to our consumer offer and pricing for us to grow our business. Competition, the broad deployment of high speed data in Europe, an increasing focus on unified while a fact of life in any industry, is being networks, and the increasing deployment communications, and an attractive exacerbated by high unemployment and of TV programming, films and music streaming and growing exposure to emerging austerity measures. These force many across all devices, we expect customers’ markets. Fundamental to the success customers to value price over quality. appetite for data on both mobile and fixed of this strategy will be an ongoing In addition, regulation has lowered barriers networks to increase significantly. Companies enhancement of the consumer and to entry and allowed low or no-capital will increasingly look to consolidate telecoms enterprise customer experience through operators to compete with businesses such procurement across borders and put continuous investment in high speed data as ours which have invested significantly over mobility at the centre of their strategies, networks, and an increased drive towards many years. favouring operators who can supply seamless standardisation and simplification across unified communications. the Group to maximise cost efficiency and . accelerate execution. Consumer 2015 (turn to page 24) Enterprise 2015 (turn to page 28) Network 2015 (turn to page 30) Operations 2015 (turn to page 32)

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		09		Vodafone Group Plc   Annual Report 2013

 

Vodafone 4G ready We are deploying 4G, also known as long-term evolution (‘LTE’) technology, which at least doubles data speeds compared to 3G, bringing the very best mobile data speeds available today and building capacity for future data growth. 9% of sites in our major European markets have LTE today and we expect this to be 40% by 2015.

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10		Vodafone Group Plc   Annual Report 2013

 

More on: Business model Pages 22 and 23 Principal risks Pages 46 to 49 Simple, but thorough… Our objectives could not be more simple: to continue to invest in a superior network and customer experience, and to sustain high levels of cash generation with which we can reward shareholders and reinvest in the business – so maintaining that virtuous circle. Business model Customers Assets Supplier relationships Networks Revenue Distribution People Brand remuneration Shareholder Key risks We have a rigorous process for monitoring Reinvestment Cash flow and managing risk, which feeds directly into in the business our business and financial strategy. To read more on risks, turn to page 46.

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		11		Vodafone Group Plc   Annual Report 2013

 

Our future leaders Our global graduate programme, Discover, continued to bring the best graduates into our local markets, with around 470 top university recruits this year. In addition, we partnered with ten leading MBA schools in Europe, the US, Africa and India to recruit MBA graduates for key management roles. Turn to page 35 to read more about our talent and capability development. The Vodafone Way We want to be admired for empowering people – making their lives simpler, easier and a good deal richer and more rewarding. These are the four pillars of the Vodafone Way which forms the foundation of our culture. Customer obsessed We are passionate about exceeding customer expectations, understanding their needs and earning their increasing loyalty. Innovation hungry We promote a climate that fosters innovation and calculated risk taking to develop new services and ways of working. Ambitious and competitive We bring energy and passion to our work, setting ourselves high standards. We measure our success compared to our competitors, not just to our plans. One company, local roots We operate as one company across diverse teams and markets to achieve the best outcome for our customers. We have an international brand and values, but are part of the local community.

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12		Vodafone Group Plc   Annual Report 2013
Chairman’s statement

 

 

Chairman’s statement Strong business, strong governance Gerard Kleisterlee has been Chairman of Vodafone for two years. Previously he was CEO of Philips for ten years. Here he gives his perspectives on Vodafone’s strategy, the impact of regulation, the role and composition of the Board, our approach to management and shareholder remuneration, and Vodafone’s role in society. Summary of key points Enterprise 2015 Consumer 2015 Our strategy is to deliver individuals and Emerging Markets companies the seamless internet experience Data they will increasingly demand, irrespective Introducing of technology or platform. Vodafone 2015 Operations 2015 Network 2015 We have strength in depth in the management team and a Board comprising business leaders with a wide range of expertise. We want to broaden that experience further, while achieving a greater gender balance. Strong returns to shareholders with total dividends for the year of 10.19 pence and £1.6 billion invested in share buybacks. £6.4bn Total cash returns to shareholders during the year amounted to £6.4 billion. Personal perspectives In a world that is becoming increasingly digital, Vodafone’s strategy is to deliver individuals and companies the seamless internet experience they will increasingly demand, irrespective of technology or platform. Our commitment to providing the leading mobile network in each of our markets is stronger than ever, and will be supplemented by increasing our access to next generation fixed line infrastructure, which provides additional capability. We have made strong progress in this respect this year, with over £8.7 billion invested in spectrum and capex, and the acquisitions of CWW and TelstraClear. However, the industry remains severely constrained by regulatory intervention. Spectrum auctions are designed to maximise short-term proceeds at the expense of long-term investment in service quality and coverage, and new entrants are artificially supported. I will continue to work closely with Vittorio, our Group CEO, to engage with local and regional regulators to construct a framework which can better combine investment certainty with suitable consumer protections. The role of the Board An effective Board needs to have the right balance of knowledge and experience among the non-executive directors, and to be well informed on the relevant technological, regulatory and market developments. In February 2013 we were delighted to announce the appointment of Omid Kordestani to the Board. Omid was one of Google’s very first employees, and brings

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		13		Vodafone Group Plc   Annual Report 2013

 

 

 

Vodafone share price vs STOXX Europe 600 Index 1 April 2010 to 20 May 2013, in €, rebased to100 140 130 120 110 100 90 80 70 April 2010 April 2011 April 2012 April 2013 Vodafone share price STOXX Europe 600 Index For legal reasons it should be noted that past performance cannot be relied on as a guide to future performance. Cash returns to shareholders Strong cash returns to shareholders are an established priority for Vodafone. The ordinary dividend is the core element of shareholder remuneration, with any surplus capital distributed via special dividend or share buybacks. 2010 £4.1bn 2011 £6.6bn 2012 £10.2bn 2013 £6.4bn You can find more information on our remuneration policies on pages 67 to 82 You can find more information on our sustainability programmes on pages 36 and 37 with him a depth of insight into internet businesses built up over nearly 20 years as a pioneer in the industry. Sir John Buchanan stepped down from his role as Deputy Chairman and Senior Independent Director in July 2012, after nine years of dedicated service to the Vodafone Board. His experience was invaluable to me personally in my first year as Chairman, and I would like to thank him for his wisdom and commitment. I am delighted that Luc Vandevelde agreed to become Senior Independent Director in Sir John’s place. Luc has also served on the Board for nine years, and has therefore reached the milestone after which the UK Corporate Governance Code recommends Boards take account of a director’s period of service when considering whether or not he remains independent. The Board considers that it is not in the best interests of shareholders to lose the experience of two such distinguished international business leaders in close succession. My medium-term ambitions for the composition of the Board are to bring in further marketing expertise, and achieve a greater gender balance towards our ambition of 25% of Board members being women by 2015. Take a lead in financial reporting This year’s annual report incorporates a number of new features to make our strategy and performance easier to understand, such as our innovative move to incorporate a high level business review with our primary financial statements (pages 90 to 97). In addition, we have adopted a number of aspects of the revised UK Corporate Governance Code a year earlier than required. These include the Board’s confirmation that the report presents a fair, balanced and understandable assessment of Vodafone’s position and prospects, and an enhanced audit report. We have also adopted some of the new disclosure requirements on directors’ remuneration a year early. Strong capital discipline The Board considers the ordinary dividend to be the core element of shareholder remuneration, and something on which shareholders should be able to depend. This year we raised our ordinary dividend per share by 7% for the third year in a row, and remain focused on at least maintaining the dividend per share at this level in the future. In addition, during the year we completed a £6.8 billion share buyback programme, funded by the disposal of non-controlling interests, and committed an additional £1.5 billion to share buybacks on receipt of a further dividend from VZW in December 2012. We have demonstrated a highly disciplined approach to capital allocation, and will continue to manage our portfolio of assets in the best interest of shareholders. Taking ordinary and special dividends, and the buyback programmes, total cash returns to shareholders have been equivalent to approximately 34% of our average market capitalisation over the last four years. Furthermore, in the period from 1 April 2010 to 20 May 2013, our share price has outperformed the STOXX Europe 600 Index by 20.9%. Aligning management’s interests to shareholders’ Our incentive schemes have a bias towards long-term, share-based plans, which incentivise our leaders to prioritise multi-year investment decisions and align their interests closely with those of institutional shareholders. We deepened this alignment last year by introducing shareholding requirements throughout the senior leadership team. The Executive Committee owns Vodafone shares worth around 500% of their combined salaries in total. You can find more information on our remuneration policies on pages 67 to 82. Vodafone’s role in society Mobile technology is a massive driver of economic and social improvement. Our vision is to unleash the power of Vodafone to help transform societies and enable sustainable living for all. Whether through low cost mobile banking services, mobile agriculture solutions or mobile health initiatives, we are making a real difference to people’s lives. We have also stepped up our commitment to responsible and ethical business practices in our new Code of Conduct, published during the year. You can find more information on our sustainability programme on pages 36 and
37.
/s/ Gerard Kleisterlee
Gerard Kleisterlee
Chairman

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14		Vodafone Group Plc   Annual Report 2013
Chief Executive’s review

 

 

Chief Executive’s review Ready to seize future growth opportunities Even in the context of tough economic and regulatory conditions, I remain very excited about the longer term prospects for the industry, as customer appetite for high speed data grows rapidly, and companies look to embed mobility into their corporate strategies. Summary of where we are now. a Further good progress on data: organic revenue growth 13.8%*, European smartphone penetration 36% , up 9 percentage points year-on-year. a Vodafone Red now in 14 markets; 4.1 million customers as at 12 May 2013; 67% of consumer contract revenue in our European markets from integrated plans. a Unified communications strategy accelerated: acquisitions of CWW and TelstraClear; fibre deployment planned in Spain and Portugal. a £2.4 billion dividend received from VZW Consumer 2015 of which £1.5 billion is committed to share buybacks. Enterprise 2015 Network 2015 Operations 2015 Financial review of the year Performance was strong in our emerging markets operations, with continued good growth in revenue and improving margins. However, the macroeconomic environment in Southern Europe has been very challenging, and European regulation continues to depress returns in the industry, rather than incentivise investment. VZW, our 45% owned associate in the US, continued to achieve strong growth in revenue, adjusted EBITDA, cash flow and market share. Overall, I am satisfied with the progress we have made with our strategic priorities: a We have launched Vodafone Red, our new strategic approach to pricing and our customer proposition, in 14 markets, with very positive initial results; a We remain competitive in all markets, gaining or at least holding market share in most of our operations; a We have bought new low frequency spectrum in a number of markets, and have laid the technology platform for the rapid deployment of HSPA+ and 4G/LTE services; a We have accelerated the integration of CWW and TelstraClear, two fixed line businesses acquired during the year, advancing our enterprise and unified communications strategies; and a We have increased the ordinary dividend per share by 7% for the third year in a row, as well as buying back £1.6 billion of shares1. Group revenue for the year was down -1.4%* to £44.4 billion, with Group organic service revenue down -1.9%*. Data revenue (+13.8%*) and major emerging markets (India +10.7%*, Vodacom +3.0%*, Turkey +17.3%*) continued to perform strongly. Group adjusted EBITDA margin fell -0.5* percentage points, or -0.1* percentage points excluding restructuring costs, as the impact of steep revenue declines in Southern Europe offset improving margins in India and Vodacom. Group adjusted EBITDA fell -3.1%* to £13.3 billion, after restructuring costs of £310 million.

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		15		Vodafone Group Plc   Annual Report 2013

 

 

 

£7.9bn invested in spectrum in the last four years, to provide 4G services and improve the quality of our networks. 10.19 pence total ordinary dividends for the year, up 7% year-on-year in line with our target. Adjusted operating profit from controlled and jointly controlled operations, before our share of associates’ profits, was £5.5 billion, down -7.0%* year-on-year, reflecting the decline in adjusted EBITDA and relatively consistent depreciation and amortisation year-on-year. Group adjusted operating profit was up 9.3%* year-on-year at £12.0 billion, above our guidance range of £11.1 billion to £11.9 billion, as a result of the strong VZW contribution, which increased 30.5%* year-on-year. Excluding M&A and restructuring costs, adjusted operating profit was £12.3 billion2. We recorded an accounting gain of £0.5 billion on the acquisition of CWW and impairment charges of £7.7 billion relating to our businesses in Italy and Spain. These were driven primarily by lower projected cash flows within business plans, resulting from the tougher macroeconomic environment, and partly by an increase in discount rates. Free cash flow was £5.6 billion, or £5.8 billion2 excluding M&A and restructuring costs, at the top of our guidance range of £5.3 billion to £5.8 billion for the year. The year-on-year decline reflected the relative strength of sterling against the euro, South African rand and Indian rupee over the course of the year, as well as tough trading conditions. In addition to the free cash flow reported above, we received an income dividend of US$3.8 billion (£2.4 billion) from VZW, and will shortly receive a further £2.1 billion which will be retained for general business purposes, including spectrum costs. Capital additions were stable at £6.3 billion, as we continued to maintain a significant level of investment to extend our high speed mobile data coverage across our existing voice footprint. In addition, we spent £2.5 billion during the year on acquiring and renewing spectrum in a number of markets including the UK, India and the Netherlands. Adjusted earnings per share was up 5.0% at 15.65 pence, driven by growth in adjusted operating profit and a lower share count. The Board is recommending a final dividend per share of 6.92 pence, to give total ordinary dividends per share for the year of 10.19 pence, up 7.0% year-on-year. Service revenue growth 2013 It has been a difficult year in our controlled and jointly controlled operations due to tough economic and regulatory conditions particularly impacting our European business. However we continue to see good growth in key areas of data and emerging markets. Group -1.9%* Data +13.8%* Emerging markets +8.4%* Northern and Central Europe Organic service revenue in Northern and Central Europe was down -0.2%* year-on-year. Excluding the impact of regulated mobile termination rate (‘MTR’) cuts, service revenue was up 1.6%*. Underlying performance in the major markets of Germany, the UK and the Netherlands, while robust compared with our competitors, weakened in the second half of the year, reflecting increased competition and some macroeconomic pressure. Turkey continued to grow very well through strong execution. Enterprise revenue grew 0.8%*, with continued growth in Germany (+3.0%*) and Turkey offsetting declines in other markets. The accelerated integration of CWW is proceeding successfully, and we expect it to deliver significant network synergies in the UK and internationally, while also boosting our enterprise business. Data revenue was up 14.4%*, reflecting increased smartphone penetration – now 35.4% in the region, up 9.1 percentage points year-on-year – and further take-up of integrated voice, SMS and data plans. By the fourth quarter, 69.7% of consumer contract revenue in the major markets came from customers on these integrated plans. During the year we launched 4G/LTE services in Romania. Organic adjusted EBITDA was down -2.4%* and the adjusted EBITDA margin fell -0.7* percentage points. Margin improvement in Turkey, the Netherlands and Ireland only partly offset small declines in Germany and the UK, driven by a lower top line, rising commercial costs and higher restructuring costs in Germany. Southern Europe Organic service revenue in Southern Europe fell -11.6%* year-on-year, as the effects of severe macroeconomic weakness were intensified by strong competition, and steep cuts to MTRs in Italy and Greece. Combined mobile and fixed offers in Spain and Portugal, from incumbents and fixed operators, made increasing inroads into the market in the second half of the year. Excluding MTR cuts, service revenue fell -8.4%*. Service revenue by type 2013 Other: Fixed: 6% 11% Messaging: 12% Voice: Data: 55% 16% Data revenue was up 9.7%*, as demand for data continued to grow despite the economic and competitive pressures. Smartphone penetration increased 7.5 percentage points to 35.5%. During the year we launched 4G/LTE services in Italy, Greece and Portugal, announced a partnership with Orange in Spain to deploy fibre to six million homes over the next four years, and committed to extending our fibre network in Portugal to pass over one million homes. Organic adjusted EBITDA fell -16.4%* and the adjusted EBITDA margin fell -2.2* percentage points, mainly as a result of the steep revenue declines across the region and restructuring costs, offset by operating cost savings. Towards the end of the year, we undertook significant redundancy programmes in Spain and Greece to reduce operating expenses. AMAP Organic service revenue growth in AMAP was 3.9%*, with continued growth in all of our markets apart from Australia and New Zealand. Growth in India slowed through the year, mainly as a result of increased consumer protection regulation and a more stringent customer verification process, but the competitive environment improved and we continued to gain market share. In Vodacom, continued strong underlying revenue growth in our other sub-Saharan markets offset a weaker performance in South Africa. Despite competitive pressure and the uncertain political environment, service revenue in Egypt grew 3.7%*. Australia continued to experience steep revenue declines on the back of ongoing service perception issues. During the year we launched 4G/LTE services in South Africa and New Zealand. Organic adjusted EBITDA rose 10.3%* and the adjusted EBITDA margin increased 1.7* percentage points, with strong margin improvements in India and Vodacom offsetting a sharp decline in Australia. Ghana and Qatar also made good margin progress on strong revenue growth and market share gains. Egypt’s margin improved 1.4* percentage points.

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16		Vodafone Group Plc   Annual Report 2013
Chief Executive’s review (continued)

 

 

4.1m		£6.4bn
of our customers are on our new strategic Vodafone Red plans3, which we first launched in the UK in September 2012.		our share of VZW profits for the year, which represented 30.5%* year-on-year growth.

 

 

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Operations 2015 Over the next three years we plan to simplify further our business model both across and within countries, eliminating legacy structures, reducing non-customer-facing costs and moving towards more standardised offerings. This will enable us to maximise the benefits of our scale and share commercial, technical and support functions across geographies in Europe, and to speed up and co-ordinate our time to market for new propositions and services. We see a significant opportunity in unifying network and IT management across multiple markets, in further centralising and standardising procurement, and in offshoring more business functions to shared service centres of expertise. We are targeting an absolute reduction in European4 operating expenses from these and other programmes of £0.3 billion in the 2014 financial year. Prospects for the 2014 financial year5 Entering the new financial year, we continue to face stiff headwinds from regulation, competition and a tough economic environment, particularly in Europe. However, we are well positioned, with broad geographic exposure which includes attractive growth markets in India, Africa and the US, and a differentiated enterprise franchise. We benefit from a strong balance sheet and will continue our major focus on shareholder remuneration, while consistently reinvesting in our network to enhance the customer experience. Regulation remains a key concern for us and the industry. Again we face the significant hurdle of MTR cuts, which we expect to create a drag of over two percentage points on service revenue. However, this effect should reduce substantially in the 2015 financial year based on current regulatory glide paths. We also await clarity on EU fibre regulation, where we are supportive of the pro-investment stance, subject to equality of access and margin squeeze provisions which are enforceable at the country level. We expect adjusted operating profit for the 2014 financial year to be in the range of £12.0 billion to £12.8 billion. We expect free cash flow to be around £7.0 billion, including the £2.1 billion VZW dividend due in June 2013. We expect capital expenditure, to remain broadly steady on a constant currency basis. We expect the Group adjusted EBITDA margin, excluding M&A and restructuring costs, to decline slightly year-on-year, reflecting the ongoing weak macroeconomic environment in Europe. /s/ Vittorio Colao Vittorio Colao Chief Executive Notes: 1 £442 million from current programme and £1,126 million from previous programme. 2 Based on 2013 guidance foreign exchange rates. 3 At 12 May 2013. 4 Northern and Central Europe, Southern Europe and Common Functions, excluding restructuring costs. 5 See guidance on page 45. 10m customers are expected to be using Vodafone Red plans by March 2014. Our Vodafone 2015 strategy Consumer 2015 A new strategic approach to consumer pricing and bundling in Europe, in order to offer customers greater freedom of usage and, at the same time stabilise ARPU. We are aiming to increase the number of Vodafone Red customers to ten million by March 2014. Enterprise 2015 We are strengthening our position in enterprise, enhancing our product offering to large and medium-sized businesses and creating a dedicated enterprise operational structure. Our 2015 enterprise strategy is based on six pillars: accelerating our converged offers; consolidating our lead in M2M; growing Vodafone Global Enterprise and our Carrier Services business; leveraging our hosting capability; and offering cloud-based software as a service. Network 2015 We are focused on supporting high speed data services and delivering a consistently excellent data experience. We aim to extend our 3G footprint at 43.2 Mbps and LTE coverage across five major European markets to 80% and 40% respectively by 2015. Operations 2015 We aim to further simplify our business model both across and within countries. We are targeting a £0.3 billion reduction in European operating expenses in the 2014 financial year.

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Key performance indicators Our performance over the year We track our performance against 12 key financial, operational and commercial metrics which we judge to be the best indicators of how we are doing. Organic service revenue growth More work to do Target: Growth in the top line demonstrates our ability to grow our 2011 2.1%* To maximise service customer base and stabilise or increase ARPU. It also helps revenue growth. 2012 1.5%* to maintain margins. As we anticipated at the start of the year, we missed our service revenue target because of ongoing 2013 -1.9%* macroeconomic and regulatory pressures in Europe. Adjusted EBITDA margin On-track Target: Trends in our adjusted EBITDA margin demonstrate whether our 2011 32.0% adjusted EBITDA revenue growth is generating a good return and whether we can margin to stabilise by 2012 31.2% offset underlying cost pressures in our business with cost efficiencies. March 2014. This year excluding M&A and restructuring costs, margins fell only 2013 29.9% 0.1* percentage point year-on-year. Adjusted operating profit (‘AOP’) Achieved Target: Due to the significant contribution made to our overall profitability 2011 £11.8bn £11.1–£11.9 billion in by our US associate, VZW, AOP is a better indicator of overall 2013 financial year. 2012 £11.5bn profitability than adjusted EBITDA. We exceeded our target for the year due to a strong performance from VZW. 2013 £12.0bn Free cash flow Achieved Target: Our regular dividend is paid out of free cash flow, so maintaining £5.3–£5.8 billion in 2011 £7.0bn a high level of cash generation (even after significant continued 2013 financial year. investment in capital expenditure) is key to delivering strong 2012 £6.1bn shareholder returns. Free cash flow of £5.6 billion was within 2013 £5.6bn our guidance range for the year. % of consumer contract revenue from integrated plans (Europe) Achieved Target: Our strategic push towards integrated plans allows us both To increase 2011 27% to defend our revenue base from voice and SMS substitution, significantly and to monetise future data demand growth. 2012 44% each year. 2013 67% Smartphone penetration (Europe) On-track Target: Smartphones are the key to giving our customers access to the To increase to over 2011 19% mobile internet; the more our customers have them, the bigger 50% by 2015. our data opportunity becomes. In 2010, we set a target of at least 2012 27% 35% smartphone penetration by March 2013, which we achieved. 2013 36% We now have a new ambition of over 50% by March 2015.

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		19		Vodafone Group Plc   Annual Report 2013

 

 

 

Mobile network performance floor (Europe) On-track Target: We continuously improve the speed of our European network 75% of smartphone 2011 70% at least 200kbps to create the best data experience for our customers. This year data sessions at least we took our performance floor up to 1 Mbps or better for 75% 2012 75% at least 400kbps 3 Mbps in 2015. of our European data footprint. 2013 75% at least 1Mbps Relative market share performance On-track Target: We track our relative performance by measuring the change Gain or hold revenue 2011 9 out of 17 markets in our revenue market share against our key competitors. This year market share in most we remained competitive, gaining or holding market share in most 2012 11 out of 17 markets of our markets. of our markets. 2013 9 out of 17 markets Returns to shareholders Achieved Target: Consistent and balanced returns to shareholders demonstrate our Dividend per share 2011 +7.1% commitment to capital discipline. This year we raised our dividend growth of at least 7% per share by 7% for the third year in a row, in line with our target. 2012 +7.0% per year to March 2013 (excluding 2013 +7.0% special dividends). Consumer net promoter score (‘NPS’) More work to do Target: To better understand how well we deliver quality service to our To increase or 2011 8 out of 20 markets customers, we use NPS to measure the extent to which they maintain the number recommend us to their friends and family. We also capture this 2012 11 out of 21 markets of markets where we for our competitors which provides us with a ranking of operators are ranked number one by NPS. 2013 8 out of 21 markets within any given market. Employee engagement Achieved Target: The employee engagement score measures employees’ level Maintain top quartile. 2011 75 of engagement, a combination of pride, loyalty and motivation. 2012 77 We improved our employee engagement score again this year, remaining top quartile. 2013 78 % of women in the senior leadership team Achieved Target: This is one measure of the diversity in our business which To improve each year. 2011 17% brings us a more balanced range of skills and management 2012 19% styles. We increased the proportion during the year. 2013 20%

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Industry trends Where the industry is now The mobile industry is a large and important sector with around six and a half billion connections across the globe – in other words, most of the world’s population use mobile phones. The number of mobile phone users has doubled in the last five years, driven by an increasing range of smartphones for using mobile data, increasing demand for mobile services in emerging markets and lower prices. Scale Competition Mobile phone users The mobile industry is a large and important The industry is highly competitive, with many sector with around six and a half billion alternative providers, giving customers a wide 2007 3.4bn connections, generating over US$960 billion choice of supplier. In each country there are of annual service revenue every year. typically at least four main mobile network 2011 6.0bn The majority of revenue, some 75%, comes operators, such as Vodafone, and one national 2012 6.5bn from traditional services such as calls and texts fixed line operator. In addition, there can (on average, around 17 billion mobile phone be numerous mobile virtual network operators calls are made each day). However, over the (‘MVNOs’) – suppliers that rent capacity Mobile phone users by market 2012 last few years the demand for data services, from mobile operators to on-sell to their such as mobile internet browsing and email customers. In some countries there can also China: 17% Europe: 17% on a smartphone, has accelerated, and today be several independent mobile retailers that 25% of industry revenue is from data. may compete with mobile network operators’ US: 5% own stores. Advances in technology have also India: 14% Other Growth led to internet based companies and software devel- oped1: 5% The demand for mobile services continues providers offering alternative communication to grow. In the last five years the number services such as voice over internet protocol Latin America: 11% of users has increased by an average of 14% (‘VoIP’). Other Asia: 15% Other: 5% each year driven by rising living standards, Africa: 11% population growth and cheaper mobile Regulation 1 Japan, Canada, Australia, New Zealand, Hong Kong, Singapore, services and handsets. In 2012 93% of the The mobile industry is very heavily regulated South Korea, Taiwan Note: Figures are not comparable with prior year disclosure due world’s population had a mobile phone, by national, regional and international to new data source whereas ten years ago this was only 18%. Most authorities. Regulators continue to lower the of the growth in users has been from emerging cost for consumers of using mobile services Mobile penetration December 2012 markets, such as China, India and Africa. by setting lower mobile termination rates As a result around 73% of mobile phone users (the fees mobile companies charge for calls Europe 137% now come from emerging markets compared received from other companies’ networks) to 60% in 2007. and to limit the amount that operators can US 110% charge for mobile roaming services. These Emerging vs. mature markets two areas represent 13% of service revenue Turkey 91% Around 70% of mobile users are in emerging for Vodafone. India 69% markets, reflecting the combination of large In an environment of intense competition populations and less fixed line infrastructure. and significant regulatory pressures, industry China 81% The remaining users are from wealthier voice prices have tended to reduce over time mature markets, such as Europe and the US. – and in 20121 fell 12%. However, with more In mature markets, most people have a mobile mobile phone users and some customers device, reflected in mobile penetration rates using their devices ever more frequently, of around 125%, compared to around 90% global industry revenue remains on a positive in emerging markets. trend and expanded 4% in 20121. Notes: The industry data on pages 20 and 21 is sourced from Strategy Analytics. 1 Refers to calendar year.

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		21		Vodafone Group Plc   Annual Report 2013

 

 

Where the industry is heading The pace of change in the mobile industry over the last few years has been significant and is expected to continue. We anticipate growing sources of revenue from data services such as mobile internet usage; higher penetration of smartphones and tablets; new users from emerging markets; and major advancements in mobile network technology to deliver faster and better customer services. The demand for seamless converged fixed and mobile solutions using high speed networks is expected to accelerate. According to industry analysts, data is expected European environment. We believe that Regulatory pressures to continue to be the fastest growing segment this demand, combined with technological The industry is expecting to see continued of the mobile industry. It is estimated that advances delivering easier connection downward revenue pressure from regulated between 2012 and 20151 worldwide mobile of multiple data devices, will support strong cuts to termination rates, and voice and data data revenue is set to grow by US$104 billion, growth in data-intensive applications over the roaming prices. European regulators are also compared to a US$20 billion decline in voice next three to five years, and that this will need seeking to encourage investment in high revenue over the same period. The demand to be managed by access to next generation speed data services. However, the policies for data is being driven by a widening range networks to support increased speed and to achieve this have not been confirmed of powerful and attractive smartphones and capacity demands. by either European or national regulators and tablets, significant improvements in mobile therefore the impact on the mobile sector network capability, and an increased choice Faster mobile networks is difficult to judge. of content and applications (‘apps’). Today’s mobile networks are typically a combination of 2G networks for traditional Most of the new demand for voice, text and basic data services, and 3G mobile services will be from Mobile service revenue by type networks for fast mobile internet access emerging markets and application downloads. The latest stage 2007 8% 92% Emerging markets, such as China, India and of mobile network development is superfast Africa, have the most potential for future 4G which is already in place in some countries 2012 25% 75% revenue growth driven by rising populations, – providing maximum theoretical user strong economic growth, lower mobile speeds of up to 150 Mbps today (with typical 2015 33% 67% penetration and a lack of alternative fixed line user speeds up to 12 Mbps, compared with Data ? ? Voice, SMS and other infrastructure. According to industry analysts, up to 6 Mbps on 3G). by 20151 there will be 1.5 billion new mobile Technological innovation Mobile phone users by market users across the globe, of which over 90% will be from emerging markets. In contrast Alternative communication technologies, such 2007 60% 40% the more mature markets in Europe are likely as instant messaging services, are increasingly to exhibit modest growth, due to weaker GDP used by mobile consumers, particularly 2012 73% 27% growth prospects, high mobile penetration in mature markets, such as Europe. These and intense regulatory pressures. services use data, rather than traditional 2015 76% 24% voice and text. This trend will continue and ? Emerging markets? Mature markets Convergence of fixed and mobile in response operators, such as Vodafone, have into unified communication services begun to replace per unit charges for voice Maximum mobile data Mbps Converged fixed and mobile solutions (such and text services with unlimited bundles and downlink speeds as combined mobile, fixed line, fixed broadband combine this with a fixed fee for data usage. and TV) provide a range of benefits for the user, New applications for mobile services are being 2007 7.2 including simplicity, flexibility and cost savings. developed by the industry to extend the use The demand for these services is already 2012 43.2 150 established among enterprise customers of mobile beyond everyday communication, and it is now becoming more visible in the such as mobile payments via a handset 2015 86.4 300 or M2M services, including the location consumer market, in part due to consumers’ ? 3G? 4G monitoring of vehicles, through a SIM card needs to save money in a recessionary embedded in the vehicle. Note: 1 Refers to calendar year.

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Vodafone Group Plc 22 Annual Report 2013 How we do business A simple business model We pursue a virtuous circle of investment, revenue, strong cash conversion and reinvestment – while rewarding shareholders along the way. Assets Supplier relationships Networks Distribution People Brand Networks People We aim to have a great mobile network We have a highly skilled, motivated and in each of our markets. This means giving diverse workforce, and we believe each our customers far-reaching coverage, a very individual should be a key advocate of reliable connection, and increasing speeds Vodafone’s products and services. For more and data capacity. We combine our ongoing information on our people, see page 34. high level of network investment with a commitment to securing the best possible portfolio of spectrum. For more information on our network build-out, see page 30. Brand Vodafone is ranked as one of the most valuable telecoms brands in the world, with an attributed worth of US$27 billion (source: Distribution Brand Finance). This brand strength is a major We reach our customers through around driver of purchasing decisions for consumers 15,000 of our own stores, a broad network and enterprise customers alike. of exclusive distribution partners and third-party retailers. The internet, whether accessed through a mobile device or PC, is becoming Reinvestment an increasingly important channel. in the business Our track record demonstrates a successful balance between the capital requirements of the business – Supplier relationships in networks, spectrum and IT platforms – Given our scale and global reach, we tend and our desire to sustain an attractive annual to be a key strategic partner for many cash return to shareholders. of our suppliers. We work closely with them to build great networks, develop innovative Capital expenditure services and offer the widest range of the latest devices. 2011 Ł6.2bn 2012 Ł6.4bn 2013 Ł6.3bn

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Business Additional Vodafone Group Plc Overview review Performance Governance Financials information 23 Annual Report 2013 404 million With 404 million customers, Vodafone is one of the biggest mobile operators in the world. We provide services to everyone, from many of the biggest multinational companies, to individuals in some of the poorest Customers countries in the world. Consumer 92% customers: Enterprise 8% customers: Our ordinary dividend, funded from our annual cash flow, is the primary form of shareholder remuneration. We have increased the ordinary dividend per share by over 22% over the last three years. Going forward the Board aims at least to maintain the ordinary dividend per share at current levels. Revenue Shareholder remuneration We generate service revenue, through the supply of communications services over our networks. Around two-thirds is under contracts with the remainder from customers buying our services on a ‘pay as you go’ (or prepaid) basis. Pay as you go Contracts (prepaid) basis Cash flow Ł5.6bn2013 free cash flow The conversion of revenue to cash flow is key both to ongoing reinvestment in the business and rewarding shareholders. We have strong market share positions in most of our markets, which, combined with highly efficient networks, deliver healthy cash flow.

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24		Vodafone Group Plc   Annual Report 2013

 

 

Vodafone Group Plc 24 Annual Report 2013 Strategy Consumer2015 1 2 3 4 Data We are reconfiguring our company to meet the growing demand for data services. We will differentiate our data services from our competitors through ongoing investment in technology, distribution and customer services, providing both a great customer experience and competitive value. Market context: Towards 2015: Strengths: Data is the fastest growing segment of our We are adopting a new strategic approach We are among the world’s largest retailers business as more and more people use data to consumer pricing and bundling in Europe, with around 15,000 Vodafone branded in their everyday lives, whether for work in order to offer customers worry-free usage retail stores, helping customers choose or home. Our data revenue grew by 13.8%* and, at the same time, stabilise average the best device and price plan for their during the year mainly due to increasing revenue per user (‘ARPU’). We believe that this needs in an increasingly complex data-demand for mobile internet and email will both support and encourage greater data centric environment. services via smartphones. usage, particularly in Europe, which is at much Actions: lower levels than the US. Pricing is being Looking forward, both smartphone We are launching new Vodafone Red plans radically simplified, giving clear visibility of the penetration and data usage are which include a generous mobile data cost of ownership for the customer and expected to continue to grow. In Europe, allowance and unlimited voice and SMS simplifying our IT and billing. our smartphone user penetration across European markets and selected is already at 36% and by 2015 we expect As technology continues to evolve at a rapid non-European markets. it to be above 50%. rate we want to support our customers Progress: by providing the best retail stores, the easiest We have 4.1 million customers on Vodafone online experience and most accessible expert 1 Red plans within eight months of launch. advice when needed. 34% of our customers use data. 48% of our consumer contract customers in Europe are on integrated voice, text and data plans up from 27% last year. Mobile commerce As more and more retailers roll out ‘contactless’ payment terminals at the checkout, Vodafone is developing services which will allow our customers to use their smartphones to pay for goods and services. We have launched Vodafone branded payment solutions in Italy and Turkey and are about to launch Vodafone SmartPass Leading in retail in four other countries. We are also developing the Vodafone Mobile Wallet to allow customers to use their existing credit and debit cards via their smartphones. We are updating our retail footprint to a new Customers can use both services at thousands of retailers by simply waving their Vodafone Retail concept delivering a differentiated smartphone in front of a contactless terminal. customer experience. A core part of our promise to customers is to ensure that our technical experts in store transfer all their personal data to their new phone allowing them to walk out of the store with their phone fully functional. Extensive trials of our new concept store across ten markets have shown significant increases in both sales and customer satisfaction. The new concept will be rolled out globally over the next three years.

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Business Additional Vodafone Group Plc Overview review Performance Governance Financials information 25 Annual Report 2013 36% Vodafone Red of customers in Europe have Our Vodafone Red proposition offers consumers and businesses a simple and worry-free package, with a smartphone, up from 27% a year ago. generous mobile data allowances, unlimited calls and text messages, plus cloud and online services to secure and back-up personal data, all included as standard. Vodafone Red packages also incorporate a number of >70% innovative services including: of smartphones users are expected a multi device plans, enabling customers to connect a the option to connect to new, ultra-fast 4G services a smartphone and tablet under one Vodafone Red where available; to use video services by 2015 (compared 2 plan, making it simple and cost effective to own and to around a third today) . a safe and secure solutions, including world-class manage multiple devices under a single bill; cloud and back-up services plus device insurance, US$27bn a family plans, allowing individual family members giving customers peace of mind in the event of theft to sign up to Vodafone Red at a discounted price; or damage; and At US$27 billion our brand is rated as one a a much wider range of device choices, giving a industry leading roaming plans for customers of the most valuable telecoms brands customers the freedom to have a new device travelling in Europe, so that they can use their phone in the world. included in the cost of their contract, receive a discount by choosing a ‘nearly new’ smartphone abroad as they do at home, for an additional daily or choose to receive a new device every year for price similar to the cost of a cup of coffee. a small extra fee; Vodafone Red Driving data usage Vodafone Red offers consumers and Although our data revenue is growing businesses a simple and worry-free package strongly in Europe the amount of data with generous mobile data allowances, consumed by each smartphone customer unlimited calls and texts, plus cloud and is on average around 250 megabytes per back-up services to secure personal data month, only around a quarter of the level seen (see Vodafone Red story above). in the US. We see a significant opportunity to drive more revenue from data services and Vodafone Red has been launched in see the Vodafone Red proposition delivering 14 markets including Germany, Italy, the UK this by offering generous data allowances and Spain. Early take-up has been positive with to encourage customers to use more data Vodafone Cloud 4.1 million customers within eight months of and over time purchase larger allowances. Vodafone Cloud allows customers to safely store launch2. We intend to extend it to all European their personal digital content such as contacts, markets within the next few months. Providing customers with photos and videos in the Vodafone network and to access it on the move from any connected Future proofing revenues devices in a cost-effective way device. Vodafone Cloud was launched last year in multiple markets and works across the most popular At Vodafone we are a major source of our smartphones, tablets and PCs, forming part of the Our Vodafone Red plans are designed to customers’ smartphones, having subsidised Vodafone Red proposition. protect our revenues by providing unlimited for many years the initial cost to access our voice and text services, rather than limited network. During the year we spent some bundles or pay per event. Vodafone Red is Ł5 billion or about 16% of our revenue the latest step in our journey over the last in Europe on acquiring new, and retaining few years to migrate our customers onto existing customers. In addition smartphone integrated price plans that combine voice, penetration in Europe increased to 36%, SMS and data together in one single plan up from 27% in the prior year, and the mix rather than buying these services separately. of smartphones continued to move towards Including Vodafone Red customers, we now more expensive high-tier devices. Against this have 48% of our consumer contract background and to protect our profitability customers in Europe on integrated price we need to maintain discipline on the handset plans. These plans deliver value to our subsidies we pay. customers, reduce the need for customers to use IP-based substitutes and provide more Our Vodafone Red proposition is designed stable revenue streams. to control handset subsidy costs by helping customers more clearly identify the difference between the price to access our services and the price of the handset. We achieve this by setting a base price for Vodafone Red plans that does not include a handset (SIM-only), charging a slightly higher service fee for a basic smartphone and more above that for a high-tier smartphone. Notes: 1 At 12 May 2013. 2 Vodafone internal estimates.

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Vodafone Group Plc 26 Annual Report 2013 Strategy (continued) Consumer2015 1 2 3 4 Emerging markets1 Emerging markets are important to us – they account for 68% of our customers and 75% of the total call minutes across our networks. These markets are likely to become even more relevant due to a combination of strong population and economic growth, and the increase in mobile penetration. Market context: Towards 2015: Strengths: Emerging markets such as India and Africa These markets offer very attractive long- We are a leading operator in our emerging are already a significant part of Vodafone. term opportunities from sustained GDP markets with either a number one or They account for 30% of the Group’s service growth, the scope for widespread mobile two revenue market share position in revenue, and our business in India alone data adoption and the fulfilment of unmet most countries. accounts for around half of our base station needs such as basic financial services. We aim Actions: sites and voice calls across the Group. to maximise these opportunities through Through our ongoing investment we have smart data pricing, the development of low-Emerging markets represent a significant built a strong platform of high quality cost smartphones and selective innovation opportunity for future growth. Almost all networks, a broad distribution reach in areas in which we can truly differentiate. of the 1.5 billion new mobile phone users and attractive add-on services, such by 20152 are expected to come from as mobile payments. emerging markets. Smartphones are also Progress: proving popular in emerging markets, and this Emerging markets represent our fastest is expected to continue. For example, In India, growing geographies. During the year service the number of smartphone users has grown * revenue increased by 8.4% , including: India already from 11 million in 2010 to 33 million * * * 2 10.7% , Turkey 17.3% and Ghana 24.2% . in 2012 . Access to energy Extending access to energy in remote regions without grid electricity enables more people to use our mobile services and brings wider social and environmental benefits. Our new solar-powered solution, ReadySet, is able to charge up to eight mobile phones per day and provide electric lighting, offering a greener and cheaper alternative to kerosene lamps. Entrepreneurs in Tanzania use ReadySet to earn around US$44 a month, while families in Kenya use M-Pesa to pay towards a similar system, M-Kopa, designed for home use. Notes: 1 Vodafone’s emerging markets comprise Vodacom, India, Egypt, Turkey, Ghana, Qatar and Fiji.

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Mobile penetration opportunity Financial services 30% in emerging markets in emerging markets Emerging markets represent the regions Our Vodafone money transfer service, M-Pesa, of our service revenue is from emerging markets. with the most potential for future mobile enables people in emerging markets, who have revenue growth driven in part by lower mobile a mobile phone, but with limited or no access 28% penetration. For example 1.2 billion people live to a bank account, to send and receive money, of our customers in emerging in India (the second most populated country top-up airtime and make bill payments. markets use data; compared to around in the world, after China) but only around two- We now have just over 18.1 million active 48% in Europe. thirds have a mobile phone, implying good M-Pesa customers, up from 14.4 million a year potential future market growth. ago, who transfer around Ł656 million per Ł656m month. The service is now available in Kenya, transferred person-to-person each month The data opportunity Tanzania, South Africa, Afghanistan, Qatar, Fiji, over our M-Pesa money transfer service. in emerging markets the Democratic Republic of Congo and India. For many people in emerging markets their M-Pesa is already a major contributor first internet experience has been on a mobile to our businesses in Kenya and Tanzania, device due to the lack of alternative fixed accounting for about 18% and 14% of line infrastructure, and we expect this revenue respectively. to be the case going forward. In South Africa Looking forward we intend to extend the mobile broadband accounts for around 80% M-Pesa service to other emerging markets of all broadband revenue including fixed. within the Vodafone footprint, and to expand The demand for data is expected to grow the products and services available. strongly as only around 28% of our customers For example in April 2013, India became in emerging markets currently use data the latest addition to our M-Pesa footprint. services, compared to around 48% in Europe. Following a successful trial, the service In India we have 37 million data customers, will be offered in a limited number of areas most of which are 2G data users mainly of the country and will be progressively rolled consuming services such as messaging, email out nationwide. The opportunity in India and internet browsing. Within this some three is particularly attractive as some 700 million million customers are 3G data users, stream people do not have a bank account. Other new videos and downloading more heavy content. products, such as international money transfer, During the year we launched 4G services savings and loans, salary disbursements and in South Africa. access to insurance products have also been introduced in different markets. Extending our global presence with partner market agreements We enter into partner market agreements with local mobile network operators in order to extend our global reach and better serve our global customers without the need for capital investment. Our partner markets community has grown rapidly to cover around 50 countries. During the year we established a partner agreement with Polkomtel in Poland and Zain Group, which extended our reach to Saudi Arabia, Bahrain, Kuwait, Jordan and Iraq. M-Shwari, Mobile banking M-Shwari is a revolutionary new paperless banking product for M-Pesa customers, delivered by our associate Safaricom, in partnership with the Commercial Bank of Africa. This was launched in Kenya in November 2012. M-Shwari enables customers to save and borrow directly via their phone, while earning interest on the money saved. At 31 March 2013, 1.2 million people were actively using the service in Kenya. M-Shwari builds on our successful M-Pesa money transfer service, which has 18.1 million active customers across the globe.

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28		Vodafone Group Plc   Annual Report 2013

 

 

Vodafone Group Plc 28 Annual Report 2013 Strategy (continued) Enterprise2015 1 2 3 4 As enterprise customers embrace flexible and remote working to improve business efficiency, our fixed and mobile converged solutions and global footprint enable our customers to become more effective in their business operations. Our services enable our customers to make mobility a central part of the services they offer their own customers. Market context: Towards 2015: Strengths: The core criteria our enterprise customers use Our 2015 enterprise strategy is based on six Our broad geographic footprint allows when choosing a communications service pillars: accelerating our converged offers; us to offer customers cross border fixed and provider are speed, simplicity, flexibility, cost consolidating our lead in M2M; growing mobile converged solutions while realising and security. We are well placed to offer Vodafone Global Enterprise and our Carrier scale benefits. Our recent purchase of CWW enterprise customers all of these through Services businesses; leveraging our hosting has augmented our ability to offer fully our mobile and fixed converged services, capability; and offering cloud-based software converged solutions and offer market-leading applications and secure solutions. Enterprises as a service. hosting capabilities in the UK. are expected to spend €78 billion in 2014 Our enterprise customers range from small- Actions: in areas where Vodafone provides its services: 1 office-home-office (‘SoHo’) businesses and We have created a Group-wide enterprise mobile voice, messaging, data and fixed line. small to medium-sized enterprises (‘SME’), services organisation, following the through to large domestic and multi-national CWW acquisition. corporates (‘MNC’). Progress: Enterprise now represents 27% of Group service revenue. Across the Group we have over 32 million mobile enterprise customers accounting for around 8% of all customers. Our enterprise business Machine-to-machine M2M connections allow machines In conjunction with our acquisition of CWW and TelstraClear and to deliver our enterprise to communicate with one another through our strategy, we created a Group-wide enterprise services organisation on 1 January 2013. The unit network. It is our vision to transform lives and comprises four vertical business units, and two supporting units. businesses by providing the most innovative M2M products and services for our customers. Smart metering, automotive and logistics are Vodafone Vodafone Machine-to Hosting Product Channels Local Global Carrier -machine and Cloud Management and Sales market currently the key growth sectors, with the Enterprise Services Services Support Enterprise potential global market for M2M connectivity Business growing from US$5.7 billion in 2011 Units to US$12.0 billion by 20152. We are now Presence in 50 countries worldwide serving around 11.1 million M2M connections globally, up from 7.8 million last year. Vodafone Global Enterprise (‘VGE’) During the financial year VGE achieved An increasing number of global businesses are VGE serves the needs of Vodafone’s revenue of £1.7 billion, with growth of 5%*. incorporating M2M communications into their largest MNC customers, serving around core operations, leading to greater productivity, For more information on VGE visit our website 1,700 customers representing 5.9 million enhanced customer service, lower energy at: enterprise.vodafone.com. connections, including an additional use and decreased carbon dioxide emissions. 200 customers from the integration of CWW. Vodafone Carrier Services For more information on M2M visit our website Vodafone Carrier Services was created at: m2m.vodafone.com. MNCs demand a consistent multi-country in January 2013 to consolidate all the offer from Vodafone across our global Hosting and Cloud Services Group’s carrier buying and selling into one footprint. VGE simplifies operations for these Our new Hosting and Cloud Services dedicated unit to maximise efficiencies. customers by providing them with a single include fully managed hosting solutions The acquisition of CWW provided Vodafone account and service team, a single contract, as well as cloud computing, co-location, with a market-leading carrier capability, single pricing structures and a single portfolio server and website hosting, storage and and when augmented by existing Group of products and services. VGE has created security, and build on the capability acquired capability gives Vodafone significant carrier a market-leading portfolio of managed from CWW, allowing us to target a leading scale. The Group carries nearly 28 billion mobility services providing capabilities such position in a rapidly growing market. minutes of international traffic annually, as spend management or device security The hosted services market in Western on a network of nearly 500,000 kilometres in addition to providing the underlying Europe is worth over an estimated €21 billion, of submarine cable routes. connectivity and devices.

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The acquisition of Cable & Wireless Worldwide in July 2012 What was the rationale for the What are the network and product acquisition? benefits from this acquisition? a To create the only integrated fixed and mobile player a CWW’s UK base station backhaul circuits and the in the UK. migration of Vodafone traffic onto CWW’s international cable network enable us to reduce third-party a To take advantage of CWW’s UK 20,500 kilometres wholesale payments and will help support the launch fibre network infrastructure which is within 100 of 4G services. metres of one-third of Vodafone’s UK base stations, and the extensive international cable network assets a Rationalisation of the combined Vodafone and CWW spanning 425,000 kilometres. enterprise product set aids procurement savings across network and IT services. Over 60% of products a To drive significant synergies from the will be retired or merged to deliver a simpler and more combined scale. customer focused portfolio. What are the financial implications and What has been your experience so far? synergy benefits from this acquisition? a We have been realistic about the opportunities, a We spent Ł1.3 billion to acquire the business. investment requirements and risks for CWW. a We expect integration costs of Ł500 million. a We have found the business is in better shape than a We aim to deliver annual cash flow synergies expected and are stabilising its financial, operational of at least Ł150 to Ł200 million by the 2016 and customer performance . financial year. a We have accelerated the integration plan by forming a We aim to deliver operating free cash flow from a single integrated organisation and rebranded Services that support SMEs the acquisition of Ł250 to Ł300 million in the 2016 as Vodafone. Irish Farm Computers, a software business based in financial year. County Meath, creates software solutions for farming a Initial synergies have been realised through initiatives businesses. It’s a small, highly personal business that such as removal of corporate overheads, utilising relies on Vodafone One Net to manage incoming Vodafone’s scale for procurement and are in the calls. “The flexibility enables a far more professional process of transferring Vodafone’s traffic onto approach to business, and our customer feedback has CWW’s network. been excellent,” says their operations manager. and the estimated compound annual Enterprise convergence Enterprise mobile data growth rate is over 14% from 2011 to 20163. As enterprise customers embrace flexible Vodafone’s device management solutions Vodafone’s Hosting and Cloud business and remote working to improve business help customers manage the rapidly increasing generated revenue of Ł213 million in the 2013 efficiency, so Vodafone’s fixed and mobile number of mobile devices used in their financial year. converged solutions are increasingly vital business, such as smartphones and tablets. With a large portfolio of UK data centres and to our customers’ business operations: Our reliable and secure data networks allow cloud-based hosting capabilities, we are well our customers to make full use of the mobile placed to capitalise on the growing technology a “Always on” is expected and demanded internet for business. Enterprise data revenue and procurement link between hosting, cloud by customers: 78% of small firms agreed grew 10.0%* this year driven by smartphone and connectivity. Vodafone will look to expand an instant response is the top factor penetration of around 48% in Europe, and deepen its hosting offer to all segments in maintaining a competitive edge and 40% as the use of the internet on smartphones over the coming year. of small firms surveyed said customers has increased. expect a response to a social media query Supporting units in under an hour4. The two supporting units within Group Enterprise, Product Management and a Streamlining fixed and mobile Channels and Sales Support, will drive communications can help businesses save scale, consistency and excellence across money, boost productivity and increase the Group in sales; product management responsiveness to customer needs. and development; and operational delivery; Vodafone One Net offers customers a single in order to sustain efficiencies and ensure telephone number which rings on both customer service and experience is consistent their fixed desk-phone and mobile handset. irrespective of customer scale or location. Vodafone One Net users have complete control over where and when they take their calls. As a result we help improve business Vodafone’s unique global footprint efficiency, flexibility and cost control. Vodafone Our global scale was key to ThyssenKrupp selecting One Net users generate higher revenue and us to provide 60,000 mobile voice and data Notes: have lower churn than mobile-only customers. connections across 30 countries and 50,000 M2M 1 Sourced from IDC and Vodafone estimates. At the end of the year, we had around connections to aid remote management of their 2 Analysys Mason report M2M device connections, revenue and ARPU: worldwide forecast 2011–2021 (May 2012) and includes 3.0 million Vodafone One Net customers industrial products. This contract is able to meet connectivity-related segments of the M2M value chain, such across ten markets. ThyssenKrupp’s specific needs, and offers excellent as M2M hardware and M2M application service. value for money and worldwide service management 3 Vodafone report commissioned by McKinsey. 4 Vodafone working smarter to succeed report, 2011 and from one source. Vodafone’s critical response time index, 2010.

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30		Vodafone Group Plc   Annual Report 2013

 

 

Vodafone Group Plc 30 Annual Report 2013 Strategy (continued) Network2015 1 2 3 4 We aim to have a great mobile network in all of the markets in which we operate, supported by leading IT systems. This means giving our customers far-reaching voice and data coverage, a very reliable connection, and increasing speeds and data capacity. Market context: Towards 2015: Strengths: The industry is seeing increasing demand Our network strategy continues to focus We have nearly 250,000 base station sites towards data services such as watching on supporting higher speed data in both transmitting wireless signals – making us one videos on the web and internet browsing. mature and emerging markets, and delivering of the largest mobile operators in the world. This trend is being driven by a number of a consistently excellent data experience factors including the increased take-up of Actions: to our customers through the widespread high powered smartphones and an increased We are consistently investing around deployment of 3G and 4G capability and choice of apps for business and social use. £6 billion a year to deliver a high quality high capacity backhaul and high speed fixed As a result data traffic increased by more than mobile and fixed data experience for access. We will continue our consistent level 53% over the last year and data now accounts our customers. of investment so that Vodafone customers for 73% of the total traffic on our network. can be assured of a video-standard data Progress: Against this background our Network 2015 service across our footprint in Europe and We now have 42% of our Europe 3G footprint strategy is designed to ensure the readiness we can successfully manage the high growth which can deliver peak downlink speeds and capability of our network for the future in data volumes anticipated. We will also of 43.2 Mbps (up from 15% last year) which for both consumer and enterprise and for continue to maintain the broad and deep at least doubles the average data speed with fixed and mobile services. network quality for our standard voice and a 43.2 Mbps capable smartphone. text services. Future proofing our IT infrastructure Vodafone’s five main data centres that host our IT systems, three in Europe, and one each in Africa and India, are linked together to form an internal ‘Cloud’. The servers within these centres use virtualisation technology to more effectively run multiple applications to enable customer services, such as M2M platforms, to be provisioned and scaled up very quickly and easily. It also provides the flexibility to run services for The leading Vodacom South Africa network any market from any centre, within regulatory limits. Within Europe, data is backed- Our superior network in South Africa enables us to provide a leading overall up from one centre in one country to another, to provide business continuity and customer and broadband experience. We have just over 9,400 base station sites, additional resilience. significantly ahead of our main competitor in the country. We were the first operator in South Africa to launch 4G services in October 2012. We have renewed around 77% of our 2G network and about 74% of our 3G network to date. We have also progressed well with the implementation of our own self-built fibre and microwave and 65% of our base station sites now utilise high capacity backhaul.

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Strong network reach 4G technology Fixed network As demand for mobile services moves from We are beginning to build 4G (or LTE) networks, In addition to our mobile businesses, we also voice and text to data we have been investing which will at least double the data speeds provide fixed broadband and calls in 16 to build a superior data network. Our data achievable over our 43.2 Mbps footprint. It will markets. We have started to modernise our network now covers 91% of the European also give us significant additional capacity, fixed networks to deliver much higher data population, and we are aiming to reach 95% allowing us to stay ahead of the significant speeds to the home, through a combination coverage by 2015 – nearly on a par with our growth in data traffic that we forecast. We aim of upgrades to traditional copper lines and the voice coverage. to upgrade 40% of our coverage in our five introduction of the latest fibre technology. main European markets to 4G by March 2015. At the same time, smartphones are only going In Spain we are upgrading copper lines. to get faster, so we are constantly upgrading To maximise the potential of 4G, we have In Portugal, we are extending our fibre our networks to support these future speed invested Ł7.9 billion in spectrum in the last network, and in New Zealand, the acquisition demands. Today, we provide base-level four years. Much of this spectrum is in the very of TelstraClear gives us a high speed fixed theoretical speeds of 14.4 Mbps across 98% valuable, low frequency 800 MHz band, which network. We have also announced plans of our 3G network, typically giving customers allows much broader coverage, and much in conjunction with Orange in Spain to build actual speeds of 2 to 3 Mbps – more than better in-building connectivity, than higher a fibre network which will pass 40% of homes enough to stream video or music, for example. frequencies used in wireless networks. by 2017. The next goal is to deliver another significant We now have 4G services in seven countries Elsewhere we are securing wholesale access step up in the customer experience, with the (Germany, Portugal, Italy, Romania, South to third-party fibre networks. In Germany move to peak speeds of 43.2 Mbps across Africa, Greece and New Zealand). We are also we have announced a next-generation much of our European 3G network. We are preparing for 4G launches in the UK, Spain, access agreement with Deutsche Telekom. aiming to upgrade 80% of the 3G footprint Australia and the Netherlands in the 2014 In Italy we have an agreement with Metroweb in our five major European markets to this financial year. to lease their fibre in Milan. In New Zealand level by March 2015. For customers with we are interconnecting with a government the latest smartphones, this will more than Future proofing our fibre initiative called Ultra Fast Broadband, double the speed they are currently enjoying, network infrastructure in Qatar we interconnect with Qatari National and allow them to view video in high definition, Broadband Networks and in the Netherlands We are well prepared for rapid growth in data for example. we are accessing KPN’s fibre network allowing traffic and a fast, but cost-effective, roll-out us to cover 20% of homes. of 4G services. At our base stations we are consolidating equipment across several technologies, including 4G, into a platform called “single RAN” – allowing us to reduce capex and operating costs. We have already upgraded over half our European sites to single RAN. We are also increasing capacity in our backhaul – the link between our base stations and our nationwide core networks. 57% of our European backhaul footprint is now capable UK 4G is nearly here of handling one gigabit per second – which In February we successfully bid Ł803 million in the is more than even the busiest base station UK spectrum auction for crucial low frequency (800 at full capacity will require based on current MHz) spectrum as well as more higher-frequency spectrum to boost our existing network. 800 MHz technologies and projections. spectrum is great for transmitting a stronger, more reliable signal and one that works well indoors. We Technological innovation expect to launch our ultra-fast 4G service later this year. The roll out of our 4G service is all part of around We are always looking for ways of innovating Ł1.6 million we invest every single day in the UK on in our network to improve our customers’ our network to bring our customers coverage where experience. it matters. Recently we have been changing the way we use spectrum to improve data coverage. Vodafone, the most preferred 73% By moving 3G data traffic from its traditional operator in Turkey spectrum band (2.1 MHz) down to the 900 of the traffic on our network is due to data Over the last 12 months the Turkish network has services such as video, email and internet MHz band – a process known as “re-farming” – been enhanced with the modernisation of nearly browsing on a mobile device. we can significantly improve our data coverage 1,100 legacy 2G sites with the latest single RAN and in-building reception, and we have done hardware and the implementation of around 1,200 91% this in ten markets. and 2,500 new 2G and 3G sites respectively. We have of the European population where attained the number one position in independent we operate is covered by our 3G network. benchmark tests for data transfer speeds. Vodafone is the first telecommunications firm in Turkey to be awarded the BS25999 certification for business one trillion continuity, underlining our commitment to reliable communication services for our customers. As a minutes of calls were carried and more result of our actions we are now seen as the preferred than 330 petabytes of data were sent operator in Turkey measured by benchmark net across our networks – enough data for promoter scores. 4.4 trillion emails.

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32		Vodafone Group Plc   Annual Report 2013

 

 

Vodafone Group Plc 32 Annual Report 2013 Strategy (continued) Operations2015 1 2 3 4 We are using the benefits of our global reach and scale to standardise and simplify the way we do business across the Group. This will both improve cost efficiency and reduce the time to launch new services and products to our customers. Market context: Towards 2015: Strengths: Against a background of challenging Over the next three years we will simplify Vodafone is one of the world’s largest mobile economic, regulatory and competitive further our business processes both across companies. Our scale enables us to secure pressures, in our European markets and within countries, eliminating legacy considerable unit costs savings through in particular, we are taking a number structures, reducing non customer-facing various measures including bulk purchasing, of actions to improve operating efficiency costs and moving towards more standardised standardisation of processes and transferring and reduce unnecessary processes and offerings. This will enable us to maximise the activities to lower cost locations within costs. We are also experiencing a trend benefits of our scale and share commercial, the Group. towards greater data usage, which requires technical and support functions across Actions: us to reconfigure our IT systems and geographies in Europe, and to speed We are targeting an absolute reduction standardise operating practices to support up and co-ordinate our time to market in European operating expenses (‘opex’) from new pricing plans and new data centric for new propositions and services. We see cost saving programmes of £0.3 billion in the services such as mobile payments and a significant opportunity in unifying network 2014 financial year. M2M solutions. and IT management across multiple markets, in further centralising and standardising Progress: functions and processes, and in offshoring Over the last three years we have reduced ions to shared service the absolute European opex base by some £0.3 billion, which has been used in part to offset inflationary pressures or cope with the volume of extra traffic on our networks. Vodafone and Telefónica UK (O2) network collaboration Together with Telefónica UK we have started a collaboration to operate and manage jointly a single network grid in the UK that will run two competing nationwide mobile internet and voice networks. These networks will be able to offer indoor 2G and 3G coverage targeting 98% of the UK population by 2015, delivering mobile 10.4% voice coverage and mobile internet services to the vast majority of UK households. represents our supply chain saving We also intend to offer indoor 4G coverage targeting 98% of the UK population at as a share of controlled spend during the speeds of at least 2Mbps by 2015. year, which exceeded the Hackett world class benchmark of 7.6%. >69% of the new radio sites deployed across the Group were shared with other mobile operators, which reduces the cost of renting or building new sites.

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Business Additional Vodafone Group Plc Overview review Performance Governance Financials information 33 Annual Report 2013 We are taking a number of steps across the Unifying IT management Group to improve our cost efficiency and We are progressing well in decommissioning, simplify our processes: with over 100 legacy IT applications during the 2013 financial year. In addition, common Cost efficiency customer operations processes are being Over 69% of the new radio sites deployed progressively deployed throughout the Group, across the Group during the year were shared which are supported by a single set of tightly with other mobile operators, which reduces integrated IT applications. These actions are the cost of renting or building new sites and expected to both reduce costs and improve reduces the environmental impact. the time to market for new offers such as mobile commerce services. During the financial year we commenced a UK network sharing agreement with O2 and We have developed one integrated data centre we are targeting 18,500 sites to be shared cloud across Europe and Africa and are well by 2015. In Ireland, we have entered into underway to extending it to Asia this year a site sharing agreement with Three Ireland, which enables us to operate highly resilient targeting 2,000 shared sites by 2015. services and to be faster to market with our new services. With a clear focus on driving greater standardisation and simplification, we are optimising the supplier base across our Centralising and standardising operations. In India for example, following functions and processes supplier segmentation exercises and a rigorous Our central purchasing function, the Vodafone drive to improve operational efficiencies, Procurement Company (the ‘VPC’) we rationalised our supplier base by about in Luxembourg, consolidates spend across M2M solutions for energy savings Applying our M2M solutions to monitor energy at our 75% over the last two years. our global operations allowing us to leverage network sites, offices, retail premises and data centres scale, and achieve better prices and terms has allowed us to optimise energy consumption, Unifying network management and conditions. During the financial year the procure competitively and reduce our carbon spend managed through the VPC increased footprint. This has delivered savings over the last During the year we reduced the number of network engineering teams in Europe to €6.9 billion up from €5.3 billion in the 2012 two years of about 25% across 11 European markets winning us recognition at the European Supply Chain from 13 individual country teams to four financial year. Excellence Awards 2012. consolidated teams. We also consolidated our network operations centres, which provide In addition we continue to centralise service level monitoring in Europe, to two from procurement of software and licences, which 13. In India, the 12 separate regional network is anticipated to generate around Ł100 million operations centres have been consolidated of cost benefits over the next three years. into one single centre in Pune. Shared service centres of expertise We use shared service centres in Hungary, India and Egypt to provide financial, administrative, IT, customer operations and human resource services for our operations in over 30 countries which helps us to standardise and optimise the way we run our businesses. The number of shared centre employees has increased from 6,000 in 2012 by nearly 30% to over 7,800 by 31 March 2013, and we are targeting around 10,500 by March 2014. >7,800 of our employees are now in four low cost, high skill locations, to provide shared services for the Group. Modernising the UK business In the UK we are introducing a simplified organisation and enhancing our IT systems in order to improve our customers’ experience of interacting with Vodafone. This will, for example, enable the UK business to reduce the number of different price plans from 5,000 to just 500. Additionally we will be able to better integrate the various routes our customers use to interact with us – retail shops, online, call centres and mobile devices – to make it easier for customers to order online and pick up in store.

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34		Vodafone Group Plc   Annual Report 2013

 

 

Vodafone Group Plc 34 Annual Report 2013 Our people Our people are integral to our success With over 91,0001 employees in over 30 countries, we have a wealth of international talent to draw from. We continue to develop our people to meet the requirements of our business and our employee engagement continues to be amongst the highest in the industry. Employee engagement Being an admired company is not just about Organisation effectiveness our performance and achievements, it’s also 1 In October 2012, we carried out our eighth We employed over 91,000 people about acting in a responsible, ethical and annual global people survey – and 90% of our worldwide during the year. Headcount lawful way. In 2012, we launched our revised people responded. The survey measures additions related to our acquisitions Code of Conduct which sets out our business employees’ level of engagement – of CWW in the UK and TelstraClear in New principles. All employees and contractors a combination of pride, loyalty and motivation Zealand were partly offset by reductions have a duty to report any suspected breaches We increased our overall employee in Europe. We have implemented of our Code of Conduct through our “Speak engagement score by 1 point to 78 and a new regional structure in Europe and Up” process. Along with existing web reporting, remain amongst other high performing a new enterprise division across Vodafone we launched a global telephone hotline global organisations. worldwide. Our strategic acquisitions for employees and third parties to report strengthen our capabilities in enterprise Open and regular communication is concerns on code of conduct issues. and to help us in our goal to become a total fundamental to employee engagement. communications company. In 2012, we launched the Vodafone Hub, Employment policies and our new intranet site, which aims to promote employee relations We are also continuing to drive efficiency and engagement with a social networking feature, simplification in our organisation through Our employment policies are developed Vodafone Circle, and a video channel, Tube, headcount management, appropriate to reflect local legal, cultural and employment which enables employees to upload videos organisation structures and the continued requirements. We aim to be recognised that share best practice across the business. drive to move transactional and back office as an employer of choice and therefore Group and local market Chief Executives activities to shared services teams. seek to maintain high standards and good also communicate regularly with employees employee relations wherever we operate. through a number of media, including webinars and videos. We believe that diversity plays an important role in a successful business. Our Group-wide The Vodafone Way diversity and inclusion strategy outlines In 2011, we introduced The Vodafone Way: our commitment to creating an inclusive a framework which defines how we operate, work environment which respects, with speed, simplicity and trust, and how values, celebrates and makes the most we deliver to our customers: being customer of the individual differences our people bring obsessed, innovation hungry, ambitious and to Vodafone. Key to this is our recognition competitive and acting as one company, of diversity as a business asset that fosters with local roots. We continue to embed this innovation and helps us better understand and framework, reinforcing the leadership skills meet the needs of our customers. and habits required to bring The Vodafone We do not condone unfair treatment of any Way into daily business reality to deliver our kind and offer equal opportunities in all Vodafone 2015 strategy. aspects of employment and advancement The Vodafone Way is part of employees’ regardless of race, nationality, gender, age, performance objectives and defines marital status, sexual orientation, disability, religious or political beliefs. This also applies Diversity is the key a consistent way of working to help to agency workers, the self-employed and to a successful business us strengthen our position as an admired contract workers who work for us. In our latest We value all types of diversity, but one global focus is company in the eyes of our customers, on gender balance within teams and at all levels of shareholders and employees. people survey, 89% of employees agreed the business. To understand and strengthen our that Vodafone treats people fairly, regardless female talent pipeline, we analyse the proportion of of their gender, background, age or beliefs. men and women in promotions, new hires and leavers Note: 1 Represents the average number of employees in our controlled and through our talent management dashboard. jointly controlled markets during the year.

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Talent and capability development Health and safety Employees by location 2013 During the year we strengthened our senior We know from experience that failing to follow Spain: 5% leadership team, with 61% of the vacancies basic health and safety standards can lead Italy: 6% Other:1 47% Vodacom: being filled by internal talent, up from 31% to our employees, the people we work with 8% two years ago. and the people exposed to our activities being seriously injured or killed. As part UK: 9% a Our global graduate programme, Discover, of our health and safety strategy we have continued to bring the best graduates into developed a set of Absolute Rules to focus our local markets, with around 470 top attention on common causes of fatalities and University recruits this year. In addition, Germany: serious injury. 12% we partnered with ten leading MBA schools in Europe, the US, Africa and India to recruit By focusing on controlling our top five risks, India: 13% MBA graduates for key management roles. we are creating a safe place to work, and this is evidenced by fewer fatalities and fewer 2 a We continued to encourage international Number of employees high-potential incidents. Although we have assignments in our talent pipeline and seen significant reductions in incidents and introduced the Columbus programme 2011 83,862 related fatalities year-on-year, we greatly designed for the top 5% of our graduate regret to report that 13 people died while 2012 86,373 recruits to gain international experience undertaking work on behalf of Vodafone two years after joining Vodafone. businesses around the world. Vehicle related 2013 91,272 a For the past five years we have been incidents involving subcontractors in emerging developing our next generation markets remains our main cause of fatalities of leaders through Inspire, an 18 month and we are addressing this through several Nationalities in top senior programme for high potential managers. interventions in local markets. Safety culture leadership team roles Since its inception, 200 high potential in Vodafone continues to mature with the managers from over 26 countries joined results of last year’s people survey showing 2011 29 the programme, attending leadership that 87% of employees believe that our development workshops, leading business Absolute Rules for safety are taken seriously. 2012 25 challenges, and receiving coaching sessions 2013 26 and mentoring from senior leaders. Performance, reward We are committed to helping our people and recognition perform at their best and achieve their full In 2013, we maintained our consistent Women in top senior potential through ongoing training and approach to rewarding our people, leadership team roles development. Our people review and agree based on their performance, potential development objectives during their annual and contribution to the success of the 2011 17% performance dialogue with their manager and business. We benchmark roles regularly are encouraged to learn proactively through on a total compensation basis to support 2012 19% easily accessible online resources, on-the-job our aim to provide competitive and fair 2013 20% learning and mentoring. rates of pay and benefits in every country where we operate. We also offer competitive During the year we invested over Ł34 million retirement and other benefit provisions Employee turnover rates3 in training programmes. Our global academies which vary depending on conditions and in marketing, technology, human resources practices in local markets. 2011 15% and finance enable people to develop the critical skills they need to work in particular Global short-term incentive plans are offered to a large percentage of employees 2012 15% functions. We work with leading business schools and accredited external providers and global long-term incentive plans are 2013 16% to develop and deliver the training, most offered to our senior managers. Individual of which is online. More than 33,000 people and company performance measures are Notes: have used our academies, completing over attached to these plans which give employees 1 Includes CWW. See page 102 for more information. 12,000 online and instructor-led courses. the opportunity to achieve upside for 2 Represents the average number of employees in our controlled and jointly controlled markets during the year. We focused on developing our customer exceptional performance as well as ensuring 3 Represents the average number of employees in our controlled and facing capabilities by launching global training that as a business we do not reward failure. jointly controlled markets during the year and excludes CWW. and certification programmes in retail and An ownership mentality is a cornerstone enterprise sales. We also focused on building of our reward strategy and senior executives people manager skills through mentoring are expected to build up and maintain and targeted learning interventions. Our new a significant holding in Vodafone shares global learning management system enables within a few years of joining the Company. more training to be delivered online and on demand, supporting individuals to manage their own development.

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Sustainable business Improving lives around the world Vodafone’s strategic focus on emerging markets, enterprise, data and new services brings significant opportunities to align our business growth with our goal to be a sustainable business, by contributing to resource efficiency, energy and carbon reduction, and sustainable development. The global footprint of our telecoms network, M-Pesa continues to grow. New services our significant presence in emerging markets include a savings product, M-Shwari, enabling and our long track record as an innovator people in Kenya to save as little as KES1 in mobile communications, enable us to make shillings (less than 1 pence) and a funeral an important contribution to socio-economic insurance plan in Tanzania, both of which development. This is underpinned by our further drive the financial inclusion of people strong commitment to operating responsibly with very limited resources. There are over and ethically. 18.1 million active users of Vodafone’s M-Pesa, up from 14.4 million a year ago. (See page 27) Our consumers and government and Connected Worker research enterprise customers face significant Vodafone’s M2M solutions connect machines Our Connected Worker research, explores how challenges, ranging from food shortages to the internet, transforming them into mobile technology can be used to make and ageing populations, to lack of access intelligent devices that exchange real time organisations more productive and efficient, while to communications and financial services. information. This opens up new possibilities improving the quality of life for workers in emerging Mobile technology has become a vital for how businesses are run, as well as the markets. Findings across 12 markets highlight the potential for six workforce management solutions to tool for improving people’s livelihoods and opportunity to reduce running costs and boost workers’ livelihoods by US$7.7 billion by 2020, quality of life. carbon emissions. while enabling a further US$30.6 billion in commercial benefits to organisations, through Delivering transformational services In 2013, we continued to establish Vodafone improved productivity. as a leading M2M technology provider, offering A 2012 report by Deloitte and the GSMA found new end-to-end services, including remote that a 10% expansion in mobile penetration energy monitoring solutions. leads to a 4.2% increase in economic productivity in emerging markets. As 68% Our carbon-reducing applications for M2M of our customers live in these markets, are wide-ranging, from improving fleet our efforts to extend the coverage of our management performance, to enabling networks creates tangible socio-economic smart energy grids. We now have contracts benefits, while simultaneously building our in place to supply over 9.5 million M2M customer base. connections to specifically enable carbon reductions through energy and fuel savings We continue to explore new market for our customers. opportunities to bring further sustainable benefits to societies through new partnerships Fostering enterprise and partnership and the development of products and services In sectors such as agriculture and health, that focus on: agriculture, education, finance, we are developing commercial solutions health, low carbon products and services and in partnership with governments and NGOs, smart working. to deliver a range of business and sustainable benefits to society, as well as further growing Building up to commercial scale our business. Our aim is to create commercially viable services that can be scaled up and rolled out In 2013, we announced two new strategic three-across different markets, adding value for year partnerships. The first, with the US Agency customers, commercial partners, our business for International Development (‘USAID’) and the and society. Our mobile money transfer NGO, TechnoServe, aims to reduce poverty and solution, M-Pesa, and our M2M platforms are increase resilience for half a million smallholder already well established, and work continues farmers across Kenya, Mozambique and to extend their positive impacts. Tanzania. This will be achieved through the introduction of simple but innovative mobile
technologies, including a registration system for growers, information on crop prices, collection days and quality reminders.

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The second will explore how health ministries Managing climate impacts Energy use 20131,2 GWh in sub-Saharan Africa can use mobile The Global e-Sustainability Initiative’s (‘GeSI’) Retail: technology to increase immunisation rates. SMARTer 2020 report recently projected Office: 81 462 In Mozambique, we are partnering with that while the ICT industry’s footprint will rise GSK and the Ministry of Health in a pilot to 1.27 gigatonnes CO2 equivalent by 2020, aiming to boost child vaccination rates its solutions have the potential to deliver by approximately 5% and are working with the carbon reductions of seven times that amount. GAVI Alliance on how to scale such initiatives. Our own carbon footprint must be viewed 4,723 in the context of the potential for our products In 2013, we also researched the potential for and services to help our customers reduce mobile technology to deliver commercial Network: their carbon emissions. In 2013, we began 4,180 benefits and increase productivity for to quantify the benefits of our products and organisations, while improve working life services to help us build a better picture of our and access to jobs for people in emerging overall climate impact. dioxideemissions2 markets. The resulting Connected Worker Carbon Millions of tonnes report quantifies the projected benefits for We also have targets to help us manage organisations, together with the livelihood the carbon footprint of our own operations. 2011 1.96 benefits for workers across 12 markets. Meeting these targets is proving challenging particularly in mature markets, as customers 2012 2.20 Being responsible and ethical download and send more data, which directly 2013 2.32 wherever we operate increases the amount of energy our network uses. However, we remain determined Customer trust is essential to Vodafone and Notes: to reduce our global footprint and are critical to the value of our brand. To earn 1 Energy use does not include data for fleet fuel consumption. and retain that trust we need to manage implementing new technologies that improve 2 The charts above on energy use and carbon emissions are the energy efficiency of our networks. calculated using actual or estimated data collected by our mobile our operations responsibly and conduct our operating companies except for Qatar which is estimated based on 2012 data. The data is sourced from invoices, purchasing business in an ethical and transparent way. Improving standards in the supply chain requisitions, direct data measurement and estimations where In 2012, we reinforced our commitment To raise ethical, labour and environmental required. The 2013 data includes Vodacom markets Mozambique, Tanzania, Lesotho and Democratic Republic of Congo, which were to ethical behaviour by refreshing our Code standards in our supply chain, we regularly not included in prior years, and excludes TelstraClear and CWW. of Conduct for all employees, contractors monitor and work with our suppliers Our joint venture in Italy is included in all years. and suppliers, rolling out further compulsory to improve their performance. We have made training in local markets. good progress in 2013, by strengthening due diligence measures to improve traceability Vodafone works hard to manage the risks of metals in our products and tackle the inherent in these areas, while still initiating issue of conflict minerals. Our supplier the development of products and services management programmes have also enabled which give us a commercial advantage. us to empower our customers to make more This is particularly evident in our approach sustainable choices and our Eco-Rating to protecting customer data, managing climate scheme, which assesses the impact of mobile impacts and improving ethical, labour and handsets, is now available in eight markets. environmental standards in our supply chain. Protecting data, respecting privacy Governance We are committed to protecting our The Executive Committee has overall customers’ information and respecting ownership of our sustainability strategy and their right to privacy and freedom the Board receives annual progress updates. of expression. Vodafone is a member of the We keep track of material issues through Telecommunications Industry Dialogue regular contact with customers, employees, on Freedom of Expression and Privacy, governments, investors, non-government a group of global telecoms companies who organisations and suppliers, and the Vodafone are working in collaboration with the Global Sustainability Expert Advisory Panel continues Network Initiative (‘GNI’) to address these to provide guidance on the implementation issues and Vodafone is implementing the of our strategy. group’s Guiding Principles. Our global privacy programme and binding privacy commitments have been recognised as setting an industry standard for operational and strategic privacy risk management. We continue to build greater privacy and security features into our products and services, offering our customers increasing transparency and control over how their personal information is used. Our full online sustainability report outlines our vision, approach and performance in 2013 on all these issues and more. vodafone.com/sustainability

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Annual Report 2013 Vodafone Foundation Mobile for Good At the heart of our Foundation is the belief that mobile communications technologies can address some of the world’s most pressing humanitarian challenges and our responsibility is to utilise our innovative mobile technology in mobilising social change and improving people’s lives. Over the last year, more than ever before, including the Philippine Red Cross, were given TecSOS we have delivered transformational projects access to the network to coordinate rescue The TecSOS handset has been adapted for use at scale by connecting our charitable giving and relief efforts and to set up free calling by victims of domestic abuse. The handset with our technology, working in partnership services for local people without phones, was initially developed by the Vodafone Spain with other charities and organisations to credit or power. Foundation in partnership with the Spanish increase our impact. Across our network of For the duration of the 17 day deployment Red Cross and the TecSOS Foundation, Foundations these projects are delivering Instant Network ran at full capacity with the and provides a connection to emergency significant public benefit. Total donations for maximum number of calls and texts being services at the press of a button. TecSOS the year were £51.5 million which included sent over the network at all times. In total programmes currently run in five of our £6.4 million towards Vodafone Foundations’ 296,926 calls and 578,994 texts were sent markets: Spain, Italy, Portugal, Hungary and operating costs. over Instant Network, the highest number the UK. Pilot programmes in Germany, Turkey in any deployment to date. Equipment was and Ireland are set to launch shortly. Italy Instant Network launched a national programme in 2012, removed once the permanent network had When Typhoon Bopha hit the Philippines been re-established. Hungary’s Minister of Justice made TecSOS in December communications infrastructure part of the Safety for Women programme was destroyed and network coverage was JustTextGiving and one third of the UK police forces have lost. A team of qualified Vodafone volunteers integrated TecSOS since its launch in 2011. JustTextGiving by Vodafone in the UK leads the from the Vodafone Foundation, including In total 28,426 women have used the handset way as the world’s first free SMS based charity the project manager and two Vodafone New to keep them safe from abusive partners fundraising platform available to all mobile Zealand employees, deployed Vodafone and in Spain there are on average 60 to 70 customers on any UK network. JustTextGiving Instant Network in the Philippines. Working activations a month. A user in the UK shared by Vodafone is revolutionising the way in partnership with Telecoms Sans Frontieres their experience with us: “My message charities and fundraisers collect donations, and local operator, Smart, a network was to Vodafone is a massive thank you, I hope with donors using a unique code to send established in the town of Baganga, available that you can give TecSOS handsets to more donations via text. It is also linked to Gift to anyone in the vicinity. women to help them. Without a doubt Aid which means 25% can be added to all my phone saved my life.” Thanks to Vodafone Instant Network, people donations made by a UK taxpayer. To date, were able to reconnect with families and £9.2 million (including gift aid) has been raised friends. Locals were able to receive money using JustTextGiving, 17,719 charities have to their phones via Smart money, a mobile signed up to use the service and over 72,000 For more information about application similar to M-Pesa. Aid agencies, individual fundraisers have registered for Vodafone Foundation go to unique codes. vodafonefoundation.org/m4gplayer

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Instant Network volunteer programme Vodafone Foundation volunteers are trained employees deployed as first responders to provide mobile communications support in emergencies. These network engineers, IT and corporate security specialists are trained on mobile technology, humanitarian aid and go through a certified course so they are best prepared for natural disaster situations and conflict areas. The Foundation’s Instant Network Programme comprises 67 volunteers from 21 countries across Europe, Africa and the Pacific. Exceeding our Ł7m target for Moyo Thanks to the support of our colleagues and generous partners we exceeded our Ł7 million target set in September 2011 to support ‘CCBRT’ in Tanzania. Money raised has funded the integration of a remote mobile referral system for women suffering from obstetric fistula. Diagnosis happens over the phone and money is sent via M-Pesa to cover the costs of transferring patients to Dar es Salaam for surgery. This system enabled 600 women in 2012 to receive corrective surgery compared to 168 in 2011.

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Operating results

This section presents our operating performance, providing commentary on how the revenue and the adjusted EBITDA performance of the Group and its operating segments within Northern and Central Europe, Southern Europe, AMAP, and Non-Controlled Interests and Common Functions have developed over the last year. See pages 151 to 155 for commentary on the 2012 compared to the 2011 financial year.

Group¹

		Northern and Central Europe £m				Southern Europe £m				AMAP £m				Non-Controlled  Interests and  Common  Functions2 £m				Eliminations £m				2013 £m				2012 £m								% change
																														£				Organic
Revenue			20,099				10,522				13,466				481				(123	)			44,445				46,417				(4.2	)			(1.4	)
Service revenue			18,768				9,635				12,345				315				(121	)			40,942				42,885				(4.5	)			(1.9	)
Adjusted EBITDA3			5,713				3,483				4,178				(99	)			–				13,275				14,475				(8.3	)			(3.1	)
Adjusted operating profit			2,081				1,802				1,678				6,399				–				11,960				11,532				3.7				9.3
Adjustments for:
Impairment loss																							(7,700	)			(4,050	)
Other income and expense4																							468				3,705
Operating profit																							4,728				11,187

Notes:

1	Current year results reflect average foreign exchange rates of £1:€1.23 and £1:US$1.58.

2	Common Functions primarily represent the results of the partner markets and the net result of unallocated central Group costs.

3	Operating expenses for the year ended 31 March 2013 included restructuring charges of £310 million (2012: £144 million).

4	Other income and expense for the year ended 31 March 2013 included a £473 million gain on acquisition of CWW. The year ended 31 March 2012 included a £3,419 million gain on disposal of the Group’s 44% interest in SFR and a £296 million gain on disposal of the Group’s 24.4% interest in Polkomtel.

 

 

Northern and Central Europe

		Germany £m				UK £m				Other Northern and Central Europe £m				Eliminations £m				Northern and Central Europe £m								% change
																						£m				Organic
Year ended 31 March 2013
Revenue			7,857				5,150				7,181				(89	)			20,099				2.7				–
Service revenue			7,275				4,809				6,773				(89	)			18,768				2.8				(0.2	)
Adjusted EBITDA			2,735				1,209				1,769				–				5,713				(3.7	)			(2.4	)
Adjusted operating profit			1,305				294				482				–				2,081				(17.7	)			(8.1	)
Adjusted EBITDA margin			34.8%				23.5%				24.6%								28.4%
Year ended 31 March 2012
Revenue			8,233				5,397				6,042				(97	)			19,575				3.6				3.7
Service revenue			7,669				4,996				5,695				(95	)			18,265				2.2				2.5
Adjusted EBITDA			2,965				1,294				1,675				–				5,934				2.7				2.1
Adjusted operating profit			1,491				402				637				–				2,530				2.2				0.8
Adjusted EBITDA margin			36.0%				24.0%				27.7%								30.3%

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42		Vodafone Group Plc   Annual Report 2013
Operating results (continued)

 

Southern Europe

		Italy £m				Spain £m				Other Southern Europe £m				Eliminations £m				Southern Europe £m								% change
																						£m				Organic
Year ended 31 March 2013
Revenue			4,755				3,904				1,883				(20	)			10,522				(16.0	)			(10.8	)
Service revenue			4,380				3,629				1,644				(18	)			9,635				(16.7	)			(11.6	)
Adjusted EBITDA			1,908				942				633				–				3,483				(21.5	)			(16.4	)
Adjusted operating profit			1,163				342				297				–				1,802				(32.3	)			(27.5	)
Adjusted EBITDA margin			40.1%				24.1%				33.6%								33.1%
Year ended 31 March 2012
Revenue			5,658				4,763				2,128				(27	)			12,522				(3.9	)			(5.4	)
Service revenue			5,329				4,357				1,904				(25	)			11,565				(4.7	)			(6.2	)
Adjusted EBITDA			2,514				1,193				731				–				4,438				(11.0	)			(12.5	)
Adjusted operating profit			1,735				566				359				–				2,660				(16.8	)			(18.2	)
Adjusted EBITDA margin			44.4%				25.0%				34.4%								35.4%

 

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Operating results (continued)

 

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Principal risk factors and uncertainties

 

Identifying and managing our risks

We have a clear framework for identifying and

managing risk, both at an operational and strategic

level. Our risk identification and mitigation processes

have been designed to be responsive to the ever

changing environments in which we operate.

 

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Principal risk factors and uncertainties (continued)

 

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Board of directors and Group management

Directors and senior management

Our business is managed by our Board of directors (‘the Board’). Biographical details of the directors and senior management as at 21 May 2013 are as follows (with further information available at vodafone.com/investor):

 

Gerard Kleisterlee Chairman Age: 66   Tenure: 2 years   Nationality: Dutch		Skills and experience: g Deep knowledge of consumer electronics, technology,   healthcare and lifestyle sectors g Wealth of experience operating in developed and   emerging markets g  Koninklijke Philips Electronics N.V. – President/Chief   Executive Officer and Chairman of Board of   Management (2001–2011) g  Career with Philips spanning over 30 years   Other current appointments: g  Daimler AG – Supervisory Board member g Dell – Board member g Royal Dutch Shell – Non-executive director and Audit   Committee member   Board Committees: g  Nominations and Governance (Chairman)				Vittorio Colao Chief Executive – Executive director Age: 51   Tenure: 6 years   Nationality: Italian		Skills and experience: g Over 20 years experience working in the telecoms   sector g  Vodafone Group Plc – Chief Executive Europe   (2006–2008) g RCS MediaGroup – Chief Executive (2004–2006) g  Vodafone Group Plc – Regional Chief Executive   Officer, Southern Europe (role later expanded to   include Middle East and Africa regions) (2001–2004) g  Omnitel Pronto Italia S.p.A. (became Vodafone   Italy) – appointed Chief Executive in 1999   (1996–2004) g  McKinsey & Company (1986–1996)   Other current appointments: g  Bocconi University, Italy – International Advisory   Board member g European Round Table of Industrialists – Steering   Committee member g  McKinsey & Company – Advisory Board member g Oxford Martin School – Advisory Council member   Board Committees: g  None
Andy Halford Chief Financial Officer – Executive director Age: 54   Tenure: 7 years   Nationality: British		Skills and experience: g  Extensive experience as a finance director of UK, US   and multinational companies g The Hundred Group of Finance Directors – Chairman   (2010–2012) g  Verizon Wireless partnership – Chief Financial Officer   (2002–2005) g Vodafone Group Plc – Financial Director for Northern   Europe, Middle East and Africa region (2001–2002) g  Vodafone Limited (UK operating company) – Financial   Director (1999–2001) g East Midlands Electricity Plc – Group Finance Director   (1993–1998)   Other current appointments: g Marks & Spencer Group plc – Non-executive director g Verizon Wireless partnership – Board of   Representatives member   Board Committees: g  None				Stephen Pusey Chief Technology Officer – Executive director Age: 51   Tenure: 3 years   Nationality: British		Skills and experience: g  Wealth of international experience across wireline   and wireless industries g Extensive understanding of business applications   and solutions g  Nortel Networks Corporation – various positions   over period of 23 years, including Executive   Vice President and President of EMEA region   (2001–2005) g  British Telecom (1977–1982)   Other current appointments: g  Verizon Wireless partnership – Board of   Representatives member   Board Committees: g None
Renee James Non-executive director Age: 48   Tenure: 2 years   Nationality: American		Skills and experience: g Deep knowledge of the high-tech sector g Wide ranging experience of international management g Intel Corporation – Executive Vice President and   General Manager of the Software and Services   Group (2012–2013) g Intel Corporation – Senior Vice President (2010–2012) g Intel Corporation – Vice President (2005–2010) g Intel Software and Services Group – General Manager   (2005–2010) g Intel’s Microsoft Program Office – Vice President and   General Manager (2000–2005) g Intel Online Services (Intel’s datacenter business) –   Director and Chief Operating Officer (1998–2000)   Other current appointments: g Intel Corporation – President g  Software subsidiaries of Intel Corporation: Havok Inc.,   Wind River Systems Inc. and McAfee, Inc. – Chairman g  VMware Inc – Independent director on Board of   directors and Audit Committee member   Board Committees: g  Remuneration				Alan Jebson Non-executive director Age: 63   Tenure: 6 years   Nationality: British		Skills and experience: g  Senior leader in international business g Knowledge of international IT systems g MacDonald, Dettwiler and Associates (Canada) –   Non-executive director (2006–2012) g HSBC Holdings plc – Group Chief Operating Officer   (2003–2006); Group Chief Information Officer   (1997–2003) g Saudi British Bank – Senior Manager, Planning and   Operations (1984–1987) g HSBC Holdings plc – Head of IT Audit (1978–1984)   Other current appointments: g  Experian plc – Non-executive director   Board Committees: g Audit and Risk
Samuel Jonah Non-executive director Age: 63   Tenure: 4 years   Nationality: Ghanaian		Skills and experience: g  Widespread experience of business in Africa,   particularly South Africa and Ghana g Standard Bank of South Africa – Non executive   Director (2006–2012) g  Advisor to the former Presidents of Ghana (2001–2009)   and South Africa (1999–2008) g Awarded a Lifetime Award by the Commonwealth   Business Council and African Business   Magazine (2006) g  Awarded the Companion of the Order of the Star   (Ghana’s highest national award) (2006) g Honorary Knighthood awarded (2003) g  AngloGold Ashanti Ltd – Executive President   (2002–2005) g Lonmin Plc. – Director (1992–2004) g  Ashanti Goldfields Co Ltd – Chief Executive Officer   (1986–2002) g Advisory Council of the President of the African   Development Bank – Member (1990–1992)   Other current appointments: g  Advisor to the Presidents of Togo and Nigeria g Imara Energy Corp. – Chairman g Iron Mineral Benefeciation Services – Non-executive   Deputy Chairman g Jonah Capital (Pty) Limited – Executive Chairman g Range Resources Limited – Non-executive Chairman g Metropolitan Insurance Company Limited – Chairman g The Investment Climate Facility – Trustee/Member of   Trustee Board   Board Committees: g Remuneration				Omid Kordestani Non-executive director Age: 49   Tenure: <1 year   Nationality: American		Skills and experience: g  Innovator in the technology industry g Commercial leader g Google – Senior Vice President Sales and Business   Development (1999–2009) g  Netscape Communications – Vice President of   Business Development (1997–1999) g Netscape Communications – Director of OEM Sales   (1995 –1997) g The 3DO Company – Director of Product   Management (1993–1995) g GO Corporation – Director of Business Development   (1991–1993) g  Hewlett-Packard – Product Marketing Manager   (1984–1989)   Other current appointments: g Google – Senior Advisor to the Office of   CEO/Founders   Board Committees: g  None

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				Annual Report 2013

 

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Executive Committee

Chaired by Vittorio Colao, this Committee focuses on our strategy, financial structure and planning, financial and competitive performance, succession planning, organisational development and Group-wide policies. The Executive Committee includes the executive directors, details of whom are shown on page 52, and the senior managers who are listed below. Further information on the Executive Committee can be found on page 64.

Senior management

Members of the Executive Committee who are not also executive directors are regarded as senior managers of the Company.

 

Paolo Bertoluzzo Chief Executive Officer, Southern Europe Age: 47   Tenure: <1 year   Nationality: Italian		Career history: g  Vodafone Italy – Chief Executive Officer   (2008–present); Chief Commercial Officer (2007);   Chief Operating Officer (2006); Head of the   Consumer Division (2005) g  Vodacom – Board member (2010–2012) g Omnitel Pronto Italia S.p.A. (became Vodafone Italy)   – various senior roles including Strategy Planning   Director (1999–2005) g Bain & Company – Manager (1995–1999) g Monitor Company – Consultant (1991–1994)				Warren Finegold Group Strategy and Business Development Director Age: 56   Tenure: 7 years   Nationality: British		Career history: g UBS Investment Bank – Managing Director and   Head of its Technology team in Europe (1995–2006) g Goldman Sachs International – Executive Director,   holding positions in New York and London   (1985–1995) g Hill Samuel & Co. Limited – Corporate Finance   Executive (1981–1985)
Philipp Humm Chief Executive Officer, Northern and Central Europe Age: 53   Tenure: <1 year   Nationality: German		Career history: g  T-Mobile USA – President and Chief Executive   Officer (2010–2012) g T-Mobile International – Chief Regional Officer   Europe; Executive Committee member   (2009–2010) g T-Mobile Germany – Chief Executive Officer;   Chief Sales Officer (2005–2008) g  Entrepreneur (2002–2005) g  Amazon – Managing Director, Germany and   France; Vice President Europe (2000–2002) g Tengelmann (German grocery retailer) – Executive   Board member; Chief Executive Officer of   Plus (food-discounter) (1992–1999) g McKinsey (1986–1992)				Nick Jeffery Group Enterprise Director Age: 45   Tenure: <1 year   Nationality: British		Career history: g Cable & Wireless Worldwide – Chief Executive   (2012–2013) g Vodafone Global Enterprise – Chief Executive   (2006–2012) g  Vodafone Group Plc – Marketing Director for   business (2004–2006) g Ciena – Senior Vice President (2003–2004) g  Microfone – Founder (2002–2003) g Cable & Wireless plc (Mercury Communications)   – led UK and international markets’ business units   (1991–2002)
Matthew Kirk Group External Affairs Director Age: 52   Tenure: 4 years   Nationality: British		Career history: g  Vodafone Group Plc – Group Director of External   Relationships (2006–2009) g British Ambassador to Finland (2002–2006) g  Member of the British Diplomatic Service for more   than 20 years				Morten Lundal Group Chief Commercial Officer Age: 48   Tenure: 4 years   Nationality: Norwegian		Career history: g  Vodafone Group Plc – Chief Executive Officer of   the Central Europe and Africa region (2008–2010) g Telenor (Nordic mobile operator) – Chief Executive   Officer of DiGi Telecommunications (Telenor’s   Malaysian subsidiary) (2004–2008); various   senior positions at Telenor, including Chief   Executive Officer for the Internet Division and   Telenor Business Solutions; Executive Vice   President for Corporate Strategy (1997–2004)
Rosemary Martin Group General Counsel and Company Secretary Age: 53   Tenure: 3 years   Nationality: British		Career history: g  Practical Law Group – Chief Executive Officer (2008) g Reuters Group Plc – Group General Counsel and   Company Secretary (2003–2008), Company   Secretary (1999–2003), Deputy Company   Secretary (1997–1999) g Mayer, Brown, Rowe & Maw – Partner (1990–1997)				Nick Read Chief Executive Officer, Africa, Middle East and Asia Pacific region Age: 48   Tenure: 4 years   Nationality: British		Career history: g  Vodafone Limited (UK operating company) – various   senior roles, including Chief Financial Officer,   Chief Commercial Officer and Chief Executive   Officer (2002–2008) g  United Business Media plc – Chief Financial Officer   of subsidiary Miller Freeman Worldwide plc   (1999–2001) g  Federal Express Worldwide Inc. – senior global   finance positions (1989–1999)
Ronald Schellekens Group Human Resources Director Age: 49   Tenure: 4 years   Nationality: Dutch		Career history: g Royal Dutch Shell Plc – HR Executive Vice President   for global downstream business (2003–2008) g PepsiCo – various international senior human   resources roles in England, South Africa,   Switzerland and Spain (1994–2003) g  AT&T Network Systems – human resources roles in   the Netherlands and Poland (1986–1994)

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Corporate governance (continued)

 

 

Key roles and responsibilities

 

 

Biographical details of the Chairman, Chief Executive and Senior Independent Director can be found on pages 52 and 53 or at vodafone.com/board. Biographical details of the Company Secretary can be found on page 54 or at vodafone.com/exco. The appointment or removal of the Company Secretary is a matter for the Board as a whole.

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Corporate governance (continued)

 

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Corporate governance (continued)

 

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Corporate governance (continued)

 

 

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Corporate governance (continued)

 

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Corporate governance (continued)

 

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Directors’ remuneration (continued)

 

Remuneration Committee

In this section we give details of the composition of the Remuneration Committee and activities undertaken over the past year.

The Remuneration Committee is comprised to exercise independent judgement and consists only of the following independent non-executive directors:

 

Chairman		Luc Vandevelde
Committee members		Renee James (from 24 July 2012)
		Samuel Jonah
		Anthony Watson (until 24 July 2012)
		Philip Yea

The Remuneration Committee regularly consults with the Chief Executive and 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, the Group Reward and Policy Director provides a perspective on information provided to the Committee, and requests information and analyses from external advisors as required. In the past, the Deputy Group Company Secretary advised the Committee on corporate governance guidelines and acted as secretary to the Committee. From March 2013 the Group General Counsel and Company Secretary has taken on this role and will continue to advise the Committee on corporate governance guidelines and act as secretary to the Committee.

External advisors

The Remuneration Committee seeks and considers advice from independent remuneration advisors where appropriate. The two appointed advisors were selected through a thorough process led by the Chairman of the Remuneration Committee and were appointed by the Remuneration Committee. We choose to use two advisors both to enable access to the best expertise and also to provide an alternative view or second opinion where required. The Chairman of the Remuneration Committee has direct access to the advisors as and when required, and the Committee determines the protocols by which the advisors interact with management in support of the Remuneration Committee. The advice and recommendations of the external advisors are used as a guide, but do not serve as a substitute for thorough consideration of the issues by each Committee member. Advisors attend Remuneration Committee meetings occasionally as and when required by the Committee.

Pwc and Towers Watson are both members of the Remuneration Consultants’ Group and, as such, voluntarily operate under the 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. Pwc and Towers Watson have confirmed that they adhered to the Code throughout the year for all remuneration services provided to Vodafone. The code is available at remunerationconsultantsgroup.com.

 

Advisor		Appointed by		Services provided to the committee		Other services provided to the company
PricewaterhouseCoopers LLP (‘pwc’)		Remuneration Committee in 2007		Advice on market practice		International mobility
				Governance		Tax
				Performance analysis		Technology
				Plan design		Finance
						Operations
						Compliance
Towers Watson		Remuneration Committee in 2007		Advice on market practice		Pension and benefit
				Provide market data on		administration
				executive rewards		Reward consultancy
				Reward consultancy

As noted in his biographical details on page 53 of this annual report, Philip Yea sits on an advisory board for pwc. In light of pwc’s role as advisor to the Remuneration Committee on remuneration matters, the Committee continue to consider his position and have determined that there is no conflict or potential conflict arising.

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70		Vodafone Group Plc   Annual Report 2013
Directors’ remuneration (continued)

 

Summary of remuneration for the 2013 financial year

In this section we summarise the pay packages awarded to our executive directors for performance in the 2013 financial year versus 2012. 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 GSTIP was earned during the year but paid out in the following year and the value of the GLTI shows that which will vest in June 2013 as a result of the performance through the three year period ended at the completion of our financial year on 31 March 2013.

The Committee reviews all incentive awards prior to payment and has full discretion to reduce awards if it believes this is appropriate. The decision need not be on objective grounds. It should be noted that the Committee did not exercise discretion in determining the GSTIP payout for this year, or in deciding the final vesting level of the GLTI.

The only instance where the Committee exercised discretion is with respect to the GSTIP paid to Michel Combes on his departure. It was agreed that Vodafone would pay him a pro-rata bonus, assuming target level of achievement, for the seven months he continued to work for the company in the financial year.

 

Details of the GSTIP payout

In the table below we describe our achievement against each of the performance measures in our GSTIP and the resulting total incentive payout level for the year ended 31 March 2013 of 65.9%.

 

Performance measure		Payout at target performance 100%				Payout at maximum performance 200%				Actual             payout %				Target performance level £bn				Actual performance level1 £bn				Commentary
Service revenue			25%				50%				14.4%				41.1				40.3				Below target performance in Europe.
Adjusted EBITDA			25%				50%				7.7%				14.0				13.3				Below target performance in Europe.
Adjusted free cash flow			20%				40%				18.4%				5.7				5.7				Close to target performance.
Competitive performance assessment			30%				60%				25.4%				Compilation of market by market assessment								Varies by market but overall on track for market share with more to do for NPS.
Total incentive payout level			100%				200%				65.9%

Note:

1	These figures are adjusted to include the removal of the impact of M&A, foreign exchange movements and any changes in accounting treatment.

 

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Directors’ remuneration (continued)

 

Summary of our compensation policies and approach for the 2014 financial year

In this forward-looking section we describe our principal reward policies along with a description of the elements of the reward package and an indication of the potential future value of this package for each of the executive directors. In addition we describe our policy applied to the non-executive directors.

These policies, as well as the individual elements of the reward package, are reviewed each year to ensure that they continue to support our Company strategy.

Pay for performance

A high proportion of total reward will be awarded through short-term and long-term performance related remuneration. This is demonstrated in the charts below where we see that at target payout 70% of the package is delivered in the form of variable pay, which rises to over 86% if maximum payout is achieved. Fixed pay comprises base salary, benefits and pension contributions, while variable pay comprises the annual bonus and the long-term incentive opportunity assuming maximum co-investment and no movement in current share price. Cash in lieu of GLTI dividends is not included in the charts below.

 

Alignment to shareholder interests

Share ownership is a key cornerstone of our reward policy and is designed to help maintain commitment over the long-term, and to ensure that the interests of our senior management team are aligned with those of shareholders. Executives are expected to build and maintain a significant shareholding in Vodafone shares as follows:

 

g

Chief Executive – four times base salary;

 

g

other executive directors – three times base salary;

 

g

other Executive Committee members and the large market CEOs – two times base salary;

 

g

other market CEOs – one times base salary; and

 

g

other senior leaders (approximately 220 members) – one-half of base salary.

 

The CEO, other executive directors, Executive Committee members and the CEO’s of our largest markets have been given five years to achieve their goals; others were given up to six years to achieve 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 and include the post-tax value of any vested but unexercised options. The values are calculated using a share price at 31 March 2013 of 186.60 pence. These values do not include the value of the shares that will vest in June.

 

		Goal as a % of salary				Current %         of salary held				% of goal         achieved				Number of equivalent shares				Value of shareholding (£m)				Date for goal to be achieved
Vittorio Colao			400%				1,170%				292%				6,959,472				13.0				July 2012
Andy Halford			300%				609%				203%				2,285,440				4.3				July 2010
Stephen Pusey			300%				445%				148%				1,372,594				2.6				June 2014

Collectively the Executive Committee including the executive directors own 17.8 million Vodafone shares, with a value of £33.3 million, whilst the full senior leadership team own approximately 43.7 million Vodafone shares with a value of £81.5 million at 31 March 2013.

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74		Vodafone Group Plc   Annual Report 2013
Directors’ remuneration (continued)

 

The remuneration package for the 2014 financial year

The table below summarises the main components of the reward package for executive directors.

 

		Purpose and link to strategy				Operation
Base salary		gTo attract and retain the best talent.				g  Salaries are reviewed annually and fixed for 12 months commencing 1 July. Decision is influenced by:
						g level of skill, experience and scope of responsibilities of individual and business performance, economic climate and market conditions;
						g  increases elsewhere within the Group; and
						g an external comparator group (which is used for reference purposes only) made up of companies of similar size and complexity to Vodafone, and is principally representative of the European top 25 companies and a few other select companies relevant to the sector. The comparator group excludes any financial services companies.
Benefits		gTo aid retention and remain competitive   within the market place.				gExecutive directors may choose to participate in the defined contribution pension scheme or to receive a cash allowance in lieu of pension.
						gCompany car or cash allowance.
						g Private medical insurance.
						g Chauffeur services, where appropriate, to assist with their role.
Global Short-Term Incentive Plan (‘GSTIP’)		gTo drive behaviour and communicate the   key priorities for the year.				g Bonus levels and the appropriateness of measures and weightings are reviewed annually to ensure they continue to support our strategy.   g Performance over the financial year is measured against stretching financial and non-financial performance targets set at the start of the financial year.   g The annual bonus is paid in cash in June each year for performance over the previous financial year.
		gTo motivate employees and incentivise   delivery of performance over the   one-year operating cycle.
		gThe three financial metrics are designed to   both drive our growth strategies whilst also   focusing on improving operating   efficiencies. Measuring competitive   performance with its heavy reliance   on net promoter score means providing   a great customer experience remains   at the heart of what we do.
Global Long-Term Incentive Plan (‘GLTI’) base awards and co-investment awards (further details can be found on page 76).		gTo motivate and incentivise delivery   of sustained performance over the   long-term.   gTo support and encourage greater   shareholder alignment through a   high level of personal financial   commitment.   gThe use of free cash flow as the principal   performance measure ensures we   apply prudent cash management and   rigorous capital discipline to our   investment decisions, whilst the use   of TSR along with the three year   performance period and the   subsequent holding of vested shares   means that we are focused on ensuring   these decisions are value enhancing   for our shareholders.				g Award levels and the framework for determining vesting are reviewed annually to ensure they continue to support our strategy.   g  Long-term incentive base awards consist of performance shares which are granted each year in June/July.   g  Individuals must co-invest Vodafone shares and hold them in trust for three years in order to receive the full target award.   g  Dividend equivalents are paid in cash after the vesting date.   g All awards vest three years later based on Group operational and external performance.

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		Opportunity				Performance metrics				Changes in year
		There are no proposed salary increases for any executive directors during the 2014 financial year compared to a salary increase budget in the UK of 1.75%.				None.				No change during the year.
		gVittorio Colao £1,110,000
		gAndy Halford £700,000
		gStephen Pusey £575,000
		The cash payment or pension contribution is equal to 30% of annual gross salary. From 6 April 2011 contributions into the defined contribution pension scheme were restricted to £50,000 per annum. Any residual of the 30% pension benefit is delivered as a cash allowance.				None.				No change during the year.
		g£19,200 per annum.
		g£1,500 per annum
		g Bonuses can range from 0–200% of base salary, with 100% paid for on-target performance. Maximum is only paid out for exceptional performance.				g Service revenue (25%);   g  Adjusted EBITDA (25%);   g  adjusted free cash flow (25%); and   g  competitive performance assessment (25%). This is an assessment encompassing both net promoter score and market share against the competitors in each of our markets.				Weighting changed for adjusted free cash flow (20% to 25%) and competitive performance assessment (30% to 25%)
		g The Chief Executive’s full award will have a target face value of 237.5% of base salary. The award for the other executive directors will have a target face value of 210% of base salary.   g Minimum vesting is zero times and maximum vesting is three times the target award level.   g To receive the full target award, executive directors must co-invest up to their annual gross salary. If they are unable to commit up to their annual gross salary, awards will be reduced accordingly, to a target base award of 137.5% (CEO) and 110% (other executive directors).   g The awards that vest accrue cash dividend equivalents over the three year vesting period.   g Awards vest to the extent performance conditions are satisfied over the three year period.				g Performance over three financial years is measured against stretching targets set at the beginning of the performance period.   g Vesting is determined based on a matrix of two measures:   gadjusted free cash flow as our   operational performance measure;   and   grelative TSR against a peer group of   companies as our external performance   measure.				The peer group has been expanded to include AT&T.

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Directors’ remuneration (continued)

 

GLTI

The extent to which awards vest will continue to depend on two performance conditions:

 

g

underlying operational performance as measured by adjusted free cash flow; and

 

g

relative TSR against a peer group median.

 

Adjusted free cash flow

The free cash flow performance is based on a three year cumulative adjusted free cash flow figure. The definition of adjusted free cash flow is free cash flow excluding:

 

g

VZW income dividends;

 

g

the impact of any mergers, acquisitions and disposals;

 

g

certain material one-off tax settlements; and

 

g

foreign exchange rate movements over the performance period.

 

The cumulative adjusted free cash flow target and range for awards in the 2014, 2013, 2012 and 2011 financial years are shown in the table below:

 

Performance		2014 £bn				2013 £bn				Vesting percentage 2013–2014 awards				2012 £bn				2011 £bn				Vesting percentage 2011–2012 awards
Below threshold			<12.4				<15.4				0%				<16.7				<18.0				0%
Threshold			12.4				15.4				50%				16.7				18.0				50%
Target			14.4				17.9				100%				19.2				20.5				100%
Maximum			16.4				20.4				150%				21.7				23.0				200%

The target adjusted free cash flow level is set by reference to the Company’s three year plan and market expectations. The Remuneration Committee considers 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 also considers these targets to be sufficiently demanding with significant stretch where only outstanding performance will be rewarded with a maximum payout.

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 for the 2014 financial year is:

 

g

AT&T

 

g

BT Group;

 

g

Deutsche Telekom;

 

g

France Telecom;

 

g

Telecom Italia;

 

g

Telefónica; and

 

g

Emerging market composite (consists of the average TSR performance of Bharti, MTN and Turkcell).

 

For awards made in the 2013, 2012 and 2011 financial years the peer group was the same other than for the inclusion of AT&T.

For awards made in the 2014, 2013, 2012 and 2011 financial years the relative TSR position will determine the performance multiplier. This will be applied to the adjusted free cash flow vesting percentage. There will be no multiplier until TSR performance exceeds median. Above median, the following table will apply (with linear interpolation between points):

 

		Outperformance of peer group median		Multiplier
Median		0.0% p.a.			No  increase
65th percentile		4.5% p.a.			1.5 times
80th percentile (upper quintile)		9.0% p.a.			2.0 times

Combined vesting matrix

The combination of the two performance measures for the award granted in the 2014 financial year gives a combined vesting matrix as follows:

 

										TSR performance
Adjusted free cash flow measure		Up to median				65th				80th
Below threshold			0%				0%				0%
Threshold			50%				75%				100%
Target			100%				150%				200%
Maximum			150%				225%				300%

The combined vesting percentages are applied to the target number of shares granted.

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Directors’ remuneration (continued)

 

Policy on non-executive directors

The remuneration of non-executive directors is reviewed annually by the Chairman following consultation with the Remuneration Committee Chairman. Our policy is to pay competitively for the role including consideration of the time commitment required. In this regard, the fees are benchmarked against a comparator group of the FTSE 15 companies. Following the 2013 review there will be no increases to the fees of non-executive directors.

 

Position/role		Fee payable (£’000) From 1 April 2013
Chairman1			600
Senior Independent Director			160
Non-executive director			115
Chairmanship of Audit and Risk Committee			25
Chairmanship of Remuneration Committee			25

Note:

1	The Chairman’s fee also includes the fee for the Chairmanship of the Nominations and Governance Committee.

In addition, an allowance of £6,000 is payable each time a non-Europe based non-executive director is required to travel to attend Board and committee meetings to reflect the additional time commitment involved.

Details of each non-executive director’s remuneration for the 2013 financial year are included in the table on page 81.

Non-executive directors do not participate in any incentive or 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.

Chairman and 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 “Nomination and Governance Committee” on page 60.

The terms and conditions of appointment of non-executive directors are available for inspection at the Company’s registered office during normal business hours and at the AGM (for 15 minutes prior to the meeting and during the meeting).

 

		Date of letter of appointment		Date of election/ re-election
Renee James		1 January 2011		AGM 2013
Alan Jebson		7 November 2006		AGM 2013
Samuel Jonah		9 March 2009		AGM 2013
Gerard Kleisterlee		1 April 2011		AGM 2013
Omid Kordestani		27 February 2013		AGM 2013
Nick Land		7 November 2006		AGM 2013
Anne Lauvergeon		20 September 2005		AGM 2013
Luc Vandevelde		24 June 2003		AGM 2013
Anthony Watson		6 February 2006		AGM 2013
Philip Yea		14 July 2005		AGM 2013

Other considerations

In this section we include all other disclosures that are currently required by statute or good practice guidelines.

All-employee share plans

The executive directors are also eligible to participate in the all-employee plans.

 

 

Summary of plans

 

Sharesave

 

The Vodafone Group 2008 Sharesave Plan is an HM Revenue & Customs (‘HMRC’) approved scheme open to all staff permanently employed by a Vodafone Company in the UK as of the eligibility date. Options under the plan are granted at up to a 20% discount to market value. Executive directors’ participation is included in the option table on page 81.

 

Share Incentive Plan

 

The Vodafone Share Incentive Plan is an HMRC approved plan open to all staff permanently employed by a Vodafone Company in the UK. Participants may contribute up to a maximum of £125 per month (or 5% of salary if less) which the trustee of the plan uses to buy shares on their behalf. An equivalent number of shares are purchased with contributions from the employing company. UK-based executive directors are eligible to participate.

 

Dilution

All awards are made under plans that incorporate dilution limits as set out in the guidelines for share incentive schemes published by the Association of British Insurers. The current estimated dilution from subsisting executive awards is approximately 2.0% of the Company’s share capital at 31 March 2013 (3.1% at 31 March 2012), whilst from all employee share awards it is approximately 0.3% (0.3% at 31 March 2012). This gives a total dilution of 2.3% (3.4% at 31 March 2012).

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Directors’ remuneration (continued)

 

Directors’ interests in the shares of the Company – long-term incentives

Performance shares

GLTI conditional share awards granted to executive directors for the relevant financial years are shown below. It is important to note that the figures shown in the first two columns represent the maximum amount which could vest at the end of the relevant three year performance period. In order to participate in these plans, executives have had to invest personal shares with a combined value of: £3,853,074 (Vittorio Colao); £1,298,585 (Andy Halford); and £1,181,654 (Stephen Pusey). The total value is calculated using the closing trade share price on 31 March 2013 of 186.6 pence.

 

 

			Total interest in performance shares at 1 April 2012 or date of appointment				Shares conditionally awarded during the 2013 financial year	1			Shares forfeited during the 2013 financial year	2			Shares vested during the 2013 financial year	2			Total interest in performance shares at 31 March 2013				Total value				Market price at date awards granted				Vesting date
		Number of shares				Number of shares				Number of shares				Number of shares				Number of shares				£’000				Pence
Vittorio Colao
2009 – Base award			4,564,995				–				–				(4,564,995)				–				–				117.47				Jun 2012
2009 – Co-investment award			1,817,866				–				–				(1,817,866)				–				–				117.47				Jun 2012
2010 – Base award			4,097,873				–				–				–				4,097,873				7,646,631				142.94				Jun 2013
2010 – Co-investment award			2,980,271				–				–				–				2,980,271				5,561,186				142.94				Jun 2013
2011 – Base award			3,740,808				–				–				–				3,740,808				6,980,348				163.20				Jun 2014
2011 – Co-investment award			2,720,588				–				–				–				2,720,588				5,076,617				163.20				Jun 2014
2012 – Base award			–				2,552,257				–				–				2,552,257				4,762,512				179.40				Jul 2015
2012 – Co-investment award			–				1,958,823				–				–				1,958,823				3,655,164				179.40				Jul 2015
Total			19,922,401				4,511,080				–				(6,382,861)				18,050,620				33,682,458
Andy Halford
2009 – Base award			2,524,934				–				–				(2,524,934)				–				–				117.47				Jun 2012
2009 – Co-investment award			1,676,756				–				–				(1,676,756)				–				–				117.47				Jun 2012
2010 – Base award			2,154,750				–				–				–				2,154,750				4,020,764				142.94				Jun 2013
2010 – Co-investment award			1,958,863				–				–				–				1,958,863				3,655,238				142.94				Jun 2013
2011 – Base award			1,887,254				–				–				–				1,887,254				3,521,616				163.20				Jun 2014
2011 – Co-investment award			756,036				–				–				–				756,036				1,410,763				163.20				Jun 2014
2012 – Base award			–				1,287,625				–				–				1,287,625				2,402,708				179.40				Jul 2015
Total			10,958,593				1,287,625				–				(4,201,690)				8,044,528				15,011,089
Michel Combes3
2009 – Base award			2,771,771				–				–				(2,771,771)				–				–				117.47				Jun 2012
2009 – Co-investment award			533,854				–				–				(533,854)				–				–				117.47				Jun 2012
2010 – Base award			2,370,225				–				(2,370,225)				–				–				–				142.94				Jun 2013
2010 – Co-investment award			1,144,116				–				(1,144,116)				–				–				–				142.94				Jun 2013
2011 – Base award			2,129,901				–				(2,129,901)				–				–				–				163.20				Jun 2014
2011 – Co-investment award			876,531				–				(876,531)				–				–				–				163.20				Jun 2014
Total			9,826,398				–				(6,520,773)				(3,305,625)				–				–
Stephen Pusey
2009 – Base award			1,872,818				–				–				(1,872,818)				–				–				117.47				Jun 2012
2009 – Co-investment award			510,879				–				–				(510,879)				–				–				117.47				Jun 2012
2010 – Base award			1,693,018				–				–				–				1,693,018				3,159,172				142.94				Jun 2013
2010 – Co-investment award			571,097				–				–				–				571,097				1,065,667				142.94				Jun 2013
2011 – Base award			1,550,245				–				–				–				1,550,245				2,892,757				163.20				Jun 2014
2011 – Co-investment award			612,745				–				–				–				612,745				1,143,382				163.20				Jun 2014
2012 – Base award			–				1,057,692				–				–				1,057,692				1,973,653				179.40				Jul 2015
2012 – Co-investment award			–				1,014,705				–				–				1,014,705				1,893,440				179.40				Jul 2015
Total			6,810,802				2,072,397				–				(2,383,697)				6,499,502				12,128,071

Notes:

1

The awards were granted during the year under the Vodafone Global Incentive Plan (‘GIP’) using the closing share price on the day before the grant which was 179.40 pence. These awards have a performance period running from 1 April 2012 to 31 March 2015. The performance conditions are a matrix of adjusted free cash flow performance and relative TSR. The vesting date will be in June 2015.

2	Shares granted on 30 June 2009 vested on 30 June 2012. The performance conditions on these awards were a matrix of adjusted free cash flow performance and relative TSR, and the resulting vesting was 100% of maximum. The share price on the vesting date was 179.25 pence.

3	Michel Combes was employed until 31 October 2012.

The aggregate number of shares conditionally awarded during the year to the Executive Committee, other than the executive directors, was 13,360,023 shares. The performance and vesting conditions on the shares awarded in the year are based on a matrix of adjusted free cash flow performance and relative TSR.

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		81		Vodafone Group Plc   Annual Report 2013

 

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82		Vodafone Group Plc   Annual Report 2013
Directors’ remuneration (continued)

 

Vodafone has been advised that for non-executive directors who are based overseas, any travel expenses in relation to attending board meetings should be included as a benefit. The table on page 81 now includes these travel expenses for both the 2012 and 2013 financial years.

Beneficial interests

The beneficial interests of directors and their connected persons in the ordinary shares of the Company, which includes interests in the Vodafone Share Incentive Plan, but which excludes interests in the Vodafone Group share option schemes, and the Vodafone Group short-term or long-term incentives, are shown below:

 

		20 May 2013				31 March 2013				1 April 2012 or date  of appointment
Vittorio Colao			6,813,283				6,813,283				3,354,896
Andy Halford			2,174,686				2,174,426				2,527,649
Stephen Pusey			1,132,019				1,132,019				698,264
Renee James			50,000				50,000				50,000
Alan Jebson			82,340				82,340				82,340
Samuel Jonah			55,350				55,350				55,350
Gerard Kleisterlee			109,552				109,552				100,000
Omid Kordestani1			–				–				–
Nick Land			35,000				35,000				35,000
Anne Lauvergeon			29,922				29,922				28,936
Luc Vandevelde			91,563				91,563				90,478
Anthony Watson			115,000				115,000				115,000
Philip Yea			61,249				61,249				61,249

Note:

1	Omid Kordestani was appointed to the Board on 1 March 2013.

At 31 March 2013 and during the period from 1 April 2013 to 20 May 2013, no director had any interest in the shares of any subsidiary company. Other than those individuals included in the table above who were Board members at 31 March 2013, members of the Group’s Executive Committee at 31 March 2013 had an aggregate beneficial interest in 7,728,527 ordinary shares of the Company. At 20 May 2013 the directors had an aggregate beneficial interest in 10,749,964 ordinary shares of the Company and the Executive Committee members had an aggregate beneficial interest in 7,925,243 ordinary shares of the Company, which includes the addition of a new Executive Committee member appointed after 31 March 2013. 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.

Interests in share options of the Company

At 20 May 2013 there had been no change to the directors’ interests in share options from 31 March 2013 (see page 81).

Other than those individuals included in the table above, at 20 May 2013 members of the Group’s Executive Committee held options for 2,592,271 ordinary shares at prices ranging from 115.3 pence to 167.8 pence per ordinary share, with a weighted average exercise price of 162.2 pence per ordinary share exercisable at dates ranging from July 2008 to July 2017.

Renee James, Alan Jebson, Samuel Jonah, Gerard Kleisterlee, Omid Kordestani, Nick Land, Anne Lauvergeon, Luc Vandevelde, Anthony Watson and Philip Yea held no options at 20 May 2013.

Directors’ interests in contracts

None of the current directors had a material interest in any contract of significance to which the Company or any of its subsidiaries was a party during the financial year.

/s/ Luc Vandevelde

Luc Vandevelde

On behalf of the Board

21 May 2013

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84		Vodafone Group Plc   Annual Report 2013
Directors’ statement of responsibility

 

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		85		Vodafone Group Plc   Annual Report 2013

 

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86		Vodafone Group Plc   Annual Report 2013
Critical accounting estimates – Audited

 

 

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		87		Vodafone Group Plc   Annual Report 2013

 

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88		Vodafone Group Plc   Annual Report 2013
Unaudited information – Risk Mitigation

 

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		89		Vodafone Group Plc   Annual Report 2013

 

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90		Vodafone Group Plc   Annual Report 2013

 

Consolidated income statement

for the years ended 31 March

 

		Note				2013 £m				2012 £m				2011 £m
Revenue			A2				44,445				46,417				45,884
Cost of sales							(30,505	)			(31,546	)			(30,814	)
Gross profit							13,940				14,871				15,070
Selling and distribution expenses							(3,258	)			(3,227	)			(3,067	)
Administrative expenses							(5,199	)			(5,075	)			(5,300	)
Share of result in associates			15				6,477				4,963				5,059
Impairment losses			12				(7,700	)			(4,050	)			(6,150	)
Other income and expense			11				468				3,705				(16	)
Operating profit			3				4,728				11,187				5,596
Non-operating income and expense			11				10				(162	)			3,022
Investment income			6				305				456				1,309
Financing costs			6				(1,788	)			(1,932	)			(429	)
Profit before taxation							3,255				9,549				9,498
Income tax expense			7				(2,582	)			(2,546	)			(1,628	)
Profit for the financial year							673				7,003				7,870
Attributable to:
– Equity shareholders							429				6,957				7,968
– Non-controlling interests							244				46				(98	)
							673				7,003				7,870
Basic earnings per share			8				0.87p				13.74p				15.20p
Diluted earnings per share			8				0.87p				13.65p				15.11p

Consolidated statement of comprehensive income

for the years ended 31 March

 

		2013 £m				2012 £m				2011 £m
(Losses)/gains on revaluation of available-for-sale investments, net of tax			(73	)			(17	)			310
Foreign exchange translation differences, net of tax			362				(3,673	)			(2,132	)
Net actuarial (losses)/gains on defined benefit pension schemes, net of tax			(198	)			(272	)			136
Foreign exchange losses/(gains) transferred to the income statement			1				(681	)			(630	)
Fair value gains transferred to the income statement			(12	)			–				(2,192	)
Other, net of tax			(4	)			(10	)			19
Other comprehensive income/(loss)			76				(4,653	)			(4,489	)
Profit for the financial year			673				7,003				7,870
Total comprehensive income for the year			749				2,350				3,381
Attributable to:
– Equity shareholders			604				2,383				3,567
– Non-controlling interests			145				(33	)			(186	)
			749				2,350				3,381

The accompanying notes are an integral part of these consolidated financial statements.

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92		Vodafone Group Plc   Annual Report 2013

 

Consolidated statement of financial position

at 31 March

 

		Note				2013 £m				2012 £m
Non-current assets
Goodwill			10				30,372				38,350
Other intangible assets			10				22,025				21,164
Property, plant and equipment			13				20,331				18,655
Investments in associates			15				38,635				35,108
Other investments			16				774				791
Deferred tax assets			7				2,920				1,970
Post employment benefits			A5				52				31
Trade and other receivables			17				4,302				3,482
							119,411				119,551
Current assets
Inventory			A3				450				486
Taxation recoverable							452				334
Trade and other receivables			17				9,412				10,744
Other investments			16				5,350				1,323
Cash and cash equivalents			23				7,623				7,138
							23,287				20,025
Total assets							142,698				139,576
Equity
Called up share capital			25				3,866				3,866
Additional paid-in capital							154,279				154,123
Treasury shares							(9,029	)			(7,841	)
Retained losses							(88,785	)			(84,184	)
Accumulated other comprehensive income							11,146				10,971
Total equity shareholders’ funds							71,477				76,935
Non-controlling interests							1,890				2,090
Put options over non-controlling interests							(879	)			(823	)
Total non-controlling interests							1,011				1,267
Total equity							72,488				78,202
Non-current liabilities
Long-term borrowings			24				29,108				28,362
Taxation liabilities							150				250
Deferred tax liabilities			7				6,698				6,597
Post employment benefits			A5				629				337
Provisions			19				907				479
Trade and other payables			18				1,494				1,324
							38,986				37,349
Current liabilities
Short-term borrowings			24				12,289				6,258
Taxation liabilities							1,919				1,898
Provisions			19				818				633
Trade and other payables			18				16,198				15,236
							31,224				24,025
Total equity and liabilities							142,698				139,576

The consolidated financial statements were approved by the Board of directors and authorised for issue on 21 May 2013 and were signed on its behalf by:

 

/s/ Vittorio Colao		/s/ Andy Halford
Vittorio Colao		Andy Halford
Chief Executive		Chief Financial Officer

The accompanying notes are an integral part of these consolidated financial statements.

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		93		Vodafone Group Plc   Annual Report 2013

 

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94		Vodafone Group Plc   Annual Report 2013

 

Consolidated statement of changes in equity

for the years ended 31 March

 

							Additional paid-in capital £m	1											Other comprehensive income																				Equity share- holders’ funds £m				Non- controlling interests £m
			Share capital £m								Treasury shares £m				Retained losses £m				Currency reserve £m				Pensions reserve £m				Investment reserve £m				Revaluation surplus £m				Other £m												Total £m
1 April 2010			4,153				153,509				(7,810	)			(79,655	)			17,086				(363	)			2,357				1,040				64				90,381				429				90,810
Issue or reissue of shares			–				–				232				(125	)			–				–				–				–				–				107				–				107
Redemption or cancellation of shares			(71	)			71				1,532				(1,532	)			–				–				–				–				–				–				–				–
Purchase of own shares			–				–				(2,125	)			–				–				–				–				–				–				(2,125	)			–				(2,125	)
Share-based payment			–				180	2			–				–				–				–				–				–				–				180				–				180
Transactions with non-controlling interests in subsidiaries			–				–				–				(120	)			–				–				–				–				–				(120	)			35				(85	)
Comprehensive income			–				–				–				7,968				(2,669	)			136				(1,882	)			–				14				3,567				(186	)			3,381
Profit/(loss)			–				–				–				7,968				–				–				–				–				–				7,968				(98	)			7,870
OCI – before tax			–				–				–				–				(2,053	)			190				347				–				14				(1,502	)			(88	)			(1,590	)
OCI – taxes			–				–				–				–				14				(54	)			(37	)			–				–				(77	)			–				(77	)
Transfer to the income statement			–				–				–				–				(630	)			–				(2,192	)3			–				–				(2,822	)			–				(2,822	)
Dividends			–				–				–				(4,468	)			–				–				–				–				–				(4,468	)			(328	)			(4,796	)
Other			–				–				–				271				–				–				(238	)			–				–				33				56				89
31 March 2011			4,082				153,760				(8,171	)			(77,661	)			14,417				(227	)			237				1,040				78				87,555				6				87,561
Issue or reissue of shares			–				2				277				(208	)			–				–				–				–				–				71				–				71
Redemption or cancellation of shares			(216	)			216				4,724				(4,724	)			–				–				–				–				–				–				–				–
Purchase of own shares			–				–				(4,671	)4			–				–				–				–				–				–				(4,671	)			–				(4,671	)
Share-based payment			–				145	2			–				–				–				–				–				–				–				145				–				145
Transactions with non-controlling interests in subsidiaries			–				–				–				(1,908	)			–				–				–				–				–				(1,908	)			1,599				(309	)
Comprehensive income			–				–				–				6,957				(4,279	)			(272	)			(17	)			–				(6	)			2,383				(33	)			2,350
Profit			–				–				–				6,957				–				–				–				–				–				6,957				46				7,003
OCI – before tax			–				–				–				–				(3,629	)			(365	)			(17	)			–				(14	)			(4,025	)			(71	)			(4,096	)
OCI – taxes			–				–				–				–				31				93				–				–				8				132				(8	)			124
Transfer to the income statement			–				–				–				–				(681	)			–				–				–				–				(681	)			–				(681	)
Dividends			–				–				–				(6,654	)			–				–				–				–				–				(6,654	)			(305	)			(6,959	)
Other			–				–				–				14				–				–				–				–				–				14				–				14
31 March 2012			3,866				154,123				(7,841	)			(84,184	)			10,138				(499	)			220				1,040				72				76,935				1,267				78,202
Issue or reissue of shares			–				2				287				(237	)			–				–				–				–				–				52				–				52
Purchase of own shares			–				–				(1,475	)4			–				–				–				–				–				–				(1,475	)			–				(1,475	)
Share-based payment			–				152	2			–				–				–				–				–				–				–				152				–				152
Transactions with non-controlling interests in subsidiaries			–				–				–				(7	)			–				–				–				–				–				(7	)			(17	)			(24	)
Comprehensive income			–				–				–				429				462				(198	)			(85	)			–				(4	)			604				145				749
Profit			–				–				–				429				–				–				–				–				–				429				244				673
OCI – before tax			–				–				–				–				482				(259	)			(73	)			–				(6	)			144				(95	)			49
OCI – taxes			–				–				–				–				(21	)			61				–				–				2				42				(4	)			38
Transfer to the income statement			–				–				–				–				1				–				(12	)			–				–				(11	)			–				(11	)
Dividends			–				–				–				(4,801	)			–				–				–				–				–				(4,801	)			(384	)			(5,185	)
Other			–				2				–				15				–				–				–				–				–				17				–				17
31 March 2013			3,866				154,279				(9,029	)			(88,785	)			10,600				(697	)			135				1,040				68				71,477				1,011				72,488

Notes:

1	Includes share premium, capital redemption reserve and merger reserve. The merger reserve was derived from acquisitions made prior to 31 March 2004 and subsequently allocated to additional paid-in capital on adoption of IFRS.

2	Includes £18 million tax credit (2012: £2 million; 2011: £24 million).

3	Amounts for 2011 include a £208 million tax credit.

4	Amount for 2013 includes a commitment for the purchase of own shares of £1,026 million (2012: £1,091 million; 2011: £nil).

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96		Vodafone Group Plc   Annual Report 2013

 

Consolidated statement of cash flows

for the years ended 31 March

 

		Note				2013 £m				2012 £m				2011 £m
Net cash flow from operating activities			22				10,694				12,755				11,995
Cash flows from investing activities
Purchase of interests in subsidiaries and joint ventures, net of cash acquired							(1,432	)			(149	)			(46	)
Other investing activities in relation to purchase of subsidiaries							–				310				(356	)
Purchase of interests in associates							(6	)			(5	)			–
Purchase of intangible assets							(4,036	)			(3,090	)			(4,290	)
Purchase of property, plant and equipment							(4,666	)			(4,762	)			(4,350	)
Purchase of investments							(4,249	)			(417	)			(318	)
Disposal of interests in subsidiaries and joint ventures, net of cash disposed							27				832				–
Disposal of interests in associates							–				6,799				–
Disposal of property, plant and equipment							153				117				51
Disposal of investments							1,523				66				4,467
Dividends received from associates							4,827				4,023				1,424
Dividends received from investments							2				3				85
Interest received							459				322				1,659
Taxation on investing activities							–				(206	)			(208	)
Net cash flow from investing activities							(7,398	)			3,843				(1,882	)
Cash flows from financing activities
Issue of ordinary share capital and reissue of treasury shares							52				71				107
Net movement in short-term borrowings							1,672				1,206				(573	)
Proceeds from issue of long-term borrowings							5,422				1,642				4,861
Repayment of borrowings							(1,720	)			(3,520	)			(4,064	)
Purchase of treasury shares							(1,568	)			(3,583	)			(2,087	)
Equity dividends paid							(4,806	)			(6,643	)			(4,468	)
Dividends paid to non-controlling shareholders in subsidiaries							(379	)			(304	)			(320	)
Other transactions with non-controlling shareholders in subsidiaries							15				(2,605	)			(137	)
Interest paid							(1,644	)			(1,633	)			(1,578	)
Net cash flow from financing activities							(2,956	)			(15,369	)			(8,259	)
Net cash flow							340				1,229				1,854
Cash and cash equivalents at beginning of the financial year			23				7,088				6,205				4,363
Exchange (gain)/loss on cash and cash equivalents							170				(346	)			(12	)
Cash and cash equivalents at end of the financial year			23				7,598				7,088				6,205

The accompanying notes are an integral part of these consolidated financial statements.

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98		Vodafone Group Plc   Annual Report 2013
Notes to the consolidated financial statements

 

 

1. Basis of preparation

The consolidated financial statements are prepared in accordance with IFRS as issued by the International Accounting Standards Board 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. For a discussion on the Group’s critical accounting estimates see “Critical accounting estimates” on pages 86 and 87. 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.

Amounts in the consolidated financial statements are stated in pounds sterling.

Vodafone Group Plc is registered in England (No. 1833679).

 

2. Significant accounting policies

Detailed below are new accounting pronouncements that we will adopt in future years and our current view of the impacts they will have on our financial reporting. There have been no significant changes to the significant accounting policies that we applied in the year; for full details refer to note A1. This note should be read in conjunction with “Critical accounting estimates” on pages 86 and 87.

New accounting pronouncements to be adopted on 1 April 2013

The following pronouncements have been issued by the IASB or the IFRIC, are effective for annual periods beginning on or after 1 January 2013 and have been endorsed for use in the EU unless otherwise stated:

 

g

Amendments to IAS 1, “Presentation of items of other comprehensive income”, effective for annual periods beginning on or after 1 July 2012.

 

g

Amendments to IAS 19, “Employee benefits”, requires revised accounting and disclosures for defined benefit pension schemes, including a different measurement basis for asset returns, replacing the expected return on plan assets and interest cost currently recorded in the consolidated income statement with net interest. This results in a revised allocation of costs between the income statement and other comprehensive income. The “corridor approach” method of spreading the recognition of actuarial gains and losses, which is not used by the Group, is prohibited. The amendments also include a revised definition of short- and long-term benefits to employees and revised criteria for the recognition of termination benefits.

 

g

Amendment to IFRS 1, “Government loans”, effective for annual periods beginning on or after 1 January 2013.

 

g

Amendments to IFRS 7, “Disclosures – offsetting financial assets and financial liabilities”, effective for annual periods beginning on or after 1 January 2013.

 

g

IFRS 10, “Consolidated Financial Statements”, which replaces parts of IAS 27, “Consolidated and Separate Financial Statements” and all of SIC-12, “Consolidation – Special Purpose Entities”, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The Group’s principal subsidiaries (see note A8) will continue to be consolidated upon adoption of IFRS 10.

 

g

IAS 27, “Separate Financial Statements”, now contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates only when an entity prepares separate financial statements and is therefore not applicable in the Group’s consolidated financial statements.

 

g

IFRS 11,“Joint Arrangements”, which replaces IAS 31, “Interests in Joint Ventures” and SIC-13, “Jointly Controlled Entities – Non-monetary Contributions by Venturers”, requires a single method, known as the equity method, to account for interests in jointly controlled entities which is consistent with the accounting treatment currently applied to investments in associates. Under IFRS 11, the Group’s principal joint ventures, excluding Cornerstone Telecommunications Infrastructure Limited (see note 14), will be incorporated into the consolidated financial statements using the equity method of accounting.

 

g

IAS 28, “Investments in Associates and Joint Ventures”, was amended as a consequence of the issuance of IFRS 11. In addition to prescribing the accounting for investment in associates, it now sets out the requirements for the application of the equity method when accounting for joint ventures. The application of the equity method has not changed as a result of this amendment.

 

g

IFRS 12, “Disclosure of Interest in Other Entities”, is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The standard includes disclosure requirements for entities within the scope of IFRS 10 and IFRS 11.

 

g

Amendments to IFRS 10, IFRS 11 and IFRS 12, “Consolidated Financial Statement, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance”; clarifies the disclosures required on adoption of these standards.

 

g

“Investment Entities”, amendments to IFRS 10, IFRS 12 and IAS 27, effective for annual periods beginning on or after 1 January 2014, but will be early-adopted by the Group on 1 January 2013. This standard has not yet been endorsed for use in the EU.

 

g

IFRS 13, “Fair Value Measurement”, effective for annual periods beginning on or after 1 January 2013.

 

g

“Improvements to IFRS 2009–2011 Cycle”, effective for annual periods beginning on or after 1 January 2013.

 

g

IFRIC 20, “Stripping costs in the production phase of a surface mine”, effective for annual periods beginning on or after 1 January 2013.

 

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		99		Vodafone Group Plc   Annual Report 2013

 

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100		Vodafone Group Plc   Annual Report 2013
Notes to the consolidated financial statements (continued)

 

 

3. Operating profit

Detailed below are the key items charged/(credited) in arriving at our operating profit.

		2013 £m				2012 £m				2011 £m
Net foreign exchange losses			22				34				14
Depreciation of property, plant and equipment (note 13):
Owned assets			4,209				4,284				4,318
Leased assets			44				79				54
Amortisation of intangible assets (note 10)			3,447				3,496				3,504
Impairment of goodwill in subsidiaries, joint ventures and associates (note 12)			7,700				3,848				6,150
Impairment of licences and spectrum (note 12)			–				121				–
Impairment of property, plant and equipment (note 12)			–				81				–
Negative goodwill (note 11)			(473	)			–				–
Research and development expenditure			307				304				287
Staff costs (note 5)			4,051				3,843				3,642
Operating lease rentals payable:
Plant and machinery			159				173				127
Other assets including fixed line rentals			1,661				1,672				1,761
Loss on disposal of property, plant and equipment			92				47				91
Own costs capitalised attributable to the construction or acquisition of property, plant and equipment			(418	)			(374	)			(331	)
The total remuneration of the Group’s auditor, Deloitte LLP and other member firms of Deloitte Touche Tohmatsu Limited for services provided to the Group is analysed below:
		2013 £m				2012 £m				2011 £m
Audit fees:
Parent company			1				1				1
Subsidiaries			7				6				7
			8				7				8
Audit-related assurance services1			1				1				1
Audit and audit-related fees:			9				8				9
Taxation advisory services2			–				–				1
Other non-audit services2			–				1				–
Total fees			9				9				10

Notes:

1	Relates to fees for statutory and regulatory filings.

2	Deloitte LLP and other member firms of Deloitte Touche Tohmatsu Limited were engaged during the year to provide a number of taxation advisory and other non-audit services. In aggregate, fees for these services amounted to £0.4 million.

In addition to the above, the Group’s joint ventures and associates paid fees totalling £1 million (2012: £2 million; 2011: £1 million) and £4 million (2012: £5 million; 2011: £5 million) respectively to Deloitte LLP and other member firms of Deloitte Touche Tohmatsu Limited during the year.

Deloitte LLP and other member firms of Deloitte Touche Tohmatsu Limited have also received fees in each of the last three years in respect of audits of charitable foundations associated to the Group.

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102		Vodafone Group Plc   Annual Report 2013
Notes to the consolidated financial statements (continued)

 

 

5. 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.

During the year the Group changed its organisation structure. The information on employees by segment is presented on the revised basis, with prior years amended to conform to the current year presentation.

 

		2013 Employees				2012 Employees				2011 Employees
By activity:
Operations			15,422				14,522				14,171
Selling and distribution			32,162				30,286				28,311
Customer care and administration			43,688				41,565				41,380
			91,272				86,373				83,862
By segment:
Germany			11,088				12,115				12,594
UK			7,850				8,151				8,174
Other Northern and Central Europe			19,679				15,500				14,215
Northern and Central Europe			38,617				35,766				34,983
Italy			5,750				5,838				6,121
Spain			4,223				4,379				4,389
Other Southern Europe			4,219				4,480				4,738
Southern Europe			14,192				14,697				15,248
India			11,996				11,234				10,743
Vodacom			7,311				7,437				7,320
Other Africa, Middle East and Asia Pacific			11,500				10,886				10,896
Africa, Middle East and Asia Pacific			30,807				29,557				28,959
Non-Controlled Interests and Common Functions			7,656				6,353				4,672
Total			91,272				86,373				83,862
The cost incurred in respect of these employees (including directors) was:
		2013 £m				2012 £m				2011 £m
Wages and salaries			3,331				3,158				2,960
Social security costs			419				399				392
Share-based payments (note A4)			134				143				156
Other pension costs (note A5)			167				143				134
			4,051				3,843				3,642

The Group has dialogue with recognised labour unions if required. In particular there are regular meetings with the Vodafone European Employee Consultative Council (EECC). The delegates of this body are locally elected Vodafone employee representatives, most of them union and works council members.

There has been no material disruption to operations as a result of union activity during the financial year.

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104		Vodafone Group Plc   Annual Report 2013
Notes to the consolidated financial statements (continued)

 

 

7. 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.

Income tax expense

		2013 £m				2012 £m				2011 £m
United Kingdom corporation tax expense/(income):
Current year			–				–				141
Adjustments in respect of prior years			24				(4	)			(5	)
			24				(4	)			136
Overseas current tax expense/(income):
Current year			3,070				2,440				2,152
Adjustments in respect of prior years			(297	)			(231	)			(477	)
			2,773				2,209				1,675
Total current tax expense			2,797				2,205				1,811
Deferred tax on origination and reversal of temporary differences:
United Kingdom deferred tax			(52	)			(8	)			(275	)
Overseas deferred tax			(163	)			349				92
Total deferred tax (income)/expense			(215	)			341				(183	)
Total income tax expense			2,582				2,546				1,628
UK operating profits are more than offset by statutory allowances for capital investment in the UK network and systems plus ongoing interest costs including those arising from the £6 billion of spectrum payments to the UK government in 2000.   Tax credited directly to other comprehensive income
		2013 £m				2012 £m				2011 £m
Current tax charge/(credit)			2				(5	)			(14	)
Deferred tax credit			(40	)			(119	)			(117	)
Total tax credited directly to other comprehensive income			(38	)			(124	)			(131	)
Tax credited directly to equity
		2013 £m				2012 £m				2011 £m
Current tax credit			(17	)			(1	)			(5	)
Deferred tax credit			(1	)			(1	)			(19	)
Total tax credited directly to equity			(18	)			(2	)			(24	)

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106		Vodafone Group Plc   Annual Report 2013
Notes to the consolidated financial statements (continued)

 

 

7. Taxation (continued)

Deferred tax assets and liabilities are analysed in the statement of financial position, after offset of balances within countries, as:

 

		£m
Deferred tax asset			2,920
Deferred tax liability			(6,698	)
31 March 2013			(3,778	)

At 31 March 2012 deferred tax assets and liabilities, before offset of balances within countries, were as follows:

 

		Amount (charged)/ credited in income statement £m				Gross deferred tax asset £m				Gross deferred tax liability £m				Less amounts unrecognised £m				Net recognised deferred tax (liability)/ asset £m
Accelerated tax depreciation			(792	)			198				(4,595	)			–				(4,397	)
Intangible assets			178				620				(2,061	)			(275	)			(1,716	)
Tax losses			254				24,742				–				(22,515	)			2,227
Deferred tax on overseas earnings			(13	)			–				(1,796	)			–				(1,796	)
Other temporary differences			32				3,254				(877	)			(1,322	)			1,055
31 March 2012			(341	)			28,814				(9,329	)			(24,112	)			(4,627	)

At 31 March 2012 deferred tax assets and liabilities were analysed in the statement of financial position, after offset of balances within countries, as:

 

		£m
Deferred tax asset			1,970
Deferred tax liability			(6,597	)
31 March 2012			(4,627	)

Factors affecting the tax charge in future years

Factors that may affect the Group’s future tax charge include the impact of corporate restructurings, the resolution of open issues, future planning, corporate acquisitions and disposals, the use of brought forward tax losses and changes in tax legislation and tax rates.

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. However, the amount ultimately paid may differ materially from the amount accrued and could therefore affect the Group’s overall profitability and cash flows in future periods.

At 31 March 2013 the gross amount and expiry dates of losses available for carry forward are as follows:

 

		Expiring within 5 years £m				Expiring within 6–10 years £m				Unlimited £m				Total £m
Losses for which a deferred tax asset is recognised			343				–				8,423				8,766
Losses for which no deferred tax is recognised			1,845				691				94,705				97,241
			2,188				691				103,128				106,007

At 31 March 2012 the gross amount and expiry dates of losses available for carry forward are as follows:

 

		Expiring  within  5 years  £m				Expiring  within  6–10 years  £m				Unlimited £m				Total £m
Losses for which a deferred tax asset is recognised			68				31				8,317				8,416
Losses for which no deferred tax is recognised			1,838				670				82,912				85,420
			1,906				701				91,229				93,836

The losses arising on the write down of investments in Germany are available to use against both German federal and trade tax liabilities. Losses of £3,236 million (2012: £3,804 million) are included in the above table on which a deferred tax asset has been recognised. The Group has not recognised a deferred tax asset on £12,346 million (2012: £11,547 million) of the losses as it is uncertain that these losses will be utilised.

Included above are losses amounting to £7,104 million (2012: £1,907 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. The losses have increased since the prior year, following the acquisition of CWW.

The losses above also include £70,644 million (2012: £72,696 million) that have arisen in overseas holding companies as a result of revaluations of those companies’ investments for local GAAP purposes. No deferred tax asset is recognised in respect of £66,110 million of these losses as it is uncertain whether these losses will be utilised. A deferred tax asset of £1,325 million (2012: £1,164 million) has been recognised for the remainder of these losses which relate to a fiscal unity in Luxembourg as we expect the members of this fiscal unity to generate taxable profits against which these losses will be used.

In addition to the above, we have an acquired £7,642 million of losses in overseas holding companies following our purchase of CWW, for which no deferred tax asset has been recognised.

The remaining losses relate to a number of other jurisdictions across the Group. There are also £5,918 million (2012: £7,283 million) of unrecognised other temporary differences.

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108		Vodafone Group Plc   Annual Report 2013
Notes to the consolidated financial statements (continued)

 

 

10. Intangible assets

Our statement of financial position contains significant intangible assets, mainly in relation to goodwill. Goodwill arises when we acquire a business and pay a higher amount than the fair value of the net assets of that business primarily due to the synergies we expect to gain from the acquisition. Goodwill is not amortised but is subject to annual impairment reviews. We also spend a significant amount on licences and spectrum which is usually amortised over the life of the licence. Refer to “Critical accounting estimates” on pages 86 and 87 for further information on how we calculate the carrying value of our goodwill and intangible assets and our processes for impairment testing.

 

		Goodwill £m				Licences and spectrum £m				Computer software £m				Other £m				Total £m
Cost:
1 April 2011			103,900				30,159				9,949				3,269				147,277
Exchange movements			(6,398	)			(1,804	)			(539	)			(306	)			(9,047	)
Arising on acquisition			87				–				19				33				139
Additions			–				1,263				1,653				10				2,926
Disposals			–				–				(653	)			(18	)			(671	)
Disposals of subsidiaries and joint ventures			(358	)			(139	)			(52	)			(24	)			(573	)
Other			–				–				81				32				113
31 March 2012			97,231				29,479				10,458				2,996				140,164
Exchange movements			712				(15	)			100				(207	)			590
Arising on acquisition			59				28				63				335				485
Additions			–				2,440				1,578				–				4,018
Disposals			–				(9	)			(603	)			–				(612	)
Disposals of subsidiaries and joint ventures			–				–				(4	)			–				(4	)
Other			(25	)			(5	)			–				(11	)			(41	)
31 March 2013			97,977				31,918				11,592				3,113				144,600
Accumulated impairment losses and amortisation:
1 April 2011			58,664				10,623				7,135				2,297				78,719
Exchange movements			(3,601	)			(645	)			(371	)			(220	)			(4,837	)
Amortisation charge for the year			–				1,891				1,298				307				3,496
Impairment losses			3,818				121				–				–				3,939
Disposals			–				–				(634	)			(16	)			(650	)
Disposals of subsidiaries and joint ventures			–				(34	)			(23	)			(20	)			(77	)
Other			–				–				55				5				60
31 March 2012			58,881				11,956				7,460				2,353				80,650
Exchange movements			1,024				53				81				(145	)			1,013
Amortisation charge for the year			–				1,782				1,399				266				3,447
Impairment losses			7,700				–				–				–				7,700
Disposals			–				(5	)			(589	)			–				(594	)
Disposals of subsidiaries and joint ventures			–				–				(3	)			–				(3	)
Other			–				–				–				(10	)			(10	)
31 March 2013			67,605				13,786				8,348				2,464				92,203
Net book value:
31 March 2012			38,350				17,523				2,998				643				59,514
31 March 2013			30,372				18,132				3,244				649				52,397

For licences and spectrum and other intangible assets, amortisation is included within the cost of sales line within the consolidated income statement. Licences and spectrum with a net book value of £2,702 million (2012: £2,991 million) have been pledged as security against borrowings.

The net book value and expiry dates of the most significant licences are as follows:

 

		Expiry date		2013 £m				2012 £m
Germany		December 2020/2025			4,329				4,778
UK		December 2021/March 2033			3,782				3,250
India		December 2026/September 2030			1,493				1,455
Qatar		June 2028			1,111				1,125
Italy		December 2021/2029			1,717				1,771
Netherlands		December 2016/February 2030/May 2030			1,329				234

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 mobile licences can be found on page 178.

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110		Vodafone Group Plc   Annual Report 2013
Notes to the consolidated financial statements (continued)

 

 

11. Acquisitions and disposals (continued)

TelstraClear Limited (‘TelstraClear’)

On 31 October 2012 the Group acquired the entire share capital of TelstraClear for cash consideration of NZ$863 million (£440 million). The primary reasons for acquiring the business were to strengthen Vodafone New Zealand’s portfolio of fixed communications solutions and to create a leading total communications company in New Zealand.

The results of the acquired entity which have been consolidated in the income statement from 31 October 2012 contributed £136 million of revenues and a loss of £23 million to the profit attributable to equity shareholders of the Group during the period.

The provisional purchase price allocation is set out in the table below:

 

		Fair value £m
Net assets acquired:
Identifiable intangible assets1			84
Property, plant and equipment			345
Trade and other receivables			55
Cash and cash equivalents			5
Current and deferred taxation liabilities			(19	)
Trade and other payables			(59	)
Provisions			(15	)
Net identifiable assets acquired			396
Goodwill2			44
Total consideration			440

Notes:

1	Identifiable intangible assets of £84 million consist of licences and spectrum fees of £27 million , TelstraClear brand of £3 million and customer relationships of £54 million.

2	The goodwill is attributable to the expected profitability of the acquired business and the synergies expected to arise after the Group’s acquisition of TelstraClear. None of the goodwill is expected to be deductible for tax purposes.

Pro-forma full year information

The following unaudited pro-forma summary presents the Group as if the acquisitions of CWW and TelstraClear had been completed on 1 April 2012. The pro-forma amounts include the results of CWW and TelstraClear, amortisation of the acquired intangible assets recognised on acquisition and interest expense on the increase in net debt as a result of the acquisitions. The pro-forma information is provided for comparative purposes only and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the combined companies.

 

		2013 £m
Revenue			45,289
Profit for the financial year			601
Profit attributable to equity shareholders			355
		Pence
Basic earnings per share			0.72
Diluted earnings per share			0.72

Other acquisitions

During the 2013 financial year the Group completed a number of other acquisitions for an aggregate net cash consideration of £25 million, all of which was paid during the year. The aggregate fair values of goodwill, identifiable assets, and liabilities of the acquired operations were £15 million, £16 million and £6 million, respectively. In addition, the Group completed the acquisition of certain non-controlling interests for a net cash consideration of £7 million.

Disposals

France – Société Française du Radiotéléphone S.A. (‘SFR’)

On 16 June 2011 the Group sold its entire 44% shareholding in SFR to Vivendi for a cash consideration of €7,750 million (£6,805 million) before tax and transaction costs and also received a final dividend of €200 million (£178 million) on completion of the transaction. The Group recognised a net gain on disposal of £3,419 million, reported in other income and expense.

 

		SFR £m
Net assets disposed			(3,953	)
Total cash consideration			6,805
Other effects1			567
Net gain on disposal2			3,419

Notes:

1	Other effects include foreign exchange gains and losses transferred to the income statement and professional fees related to the disposal.

2	Reported in other income and expense in the consolidated income statement.

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112		Vodafone Group Plc   Annual Report 2013
Notes to the consolidated financial statements (continued)

 

 

 

12. Impairment review (continued)

Key assumptions used in the value in use calculations

The key assumptions used in determining the value in use are:

Assumption		How determined
Budgeted adjusted EBITDA		Budgeted adjusted EBITDA has been based on past experience adjusted for the following:
		g 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;
		g 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
		g 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.
Budgeted capital expenditure		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 enhanced 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.
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 growth rate into perpetuity has been determined as the lower of:
		g the nominal GDP rates for the country of operation; and
		g the long-term compound annual growth rate in adjusted EBITDA in years six to ten   estimated by management.
Pre-tax risk adjusted discount rate		The discount rate applied to the cash flows of each of the Group’s operations is generally based on the risk free rate for ten year bonds issued by the government in the respective market. Where government bond rates contain a material component of credit risk, high quality local corporate bond rates may be used.
		These rates are adjusted for a risk premium to reflect both the increased risk of investing in equities and the systematic risk of the specific Group operating company. In making this adjustment, inputs required are the equity market risk premium (that is the required increased return required over and above a risk free rate by an investor who is investing in the market as a whole) and the risk adjustment, beta, applied to reflect the risk of the specific Group operating company relative to the market as a whole.
		In determining the risk adjusted discount rate, management has applied an adjustment for the systematic risk to each of the Group’s operations determined using an average of the betas of comparable listed mobile telecommunications companies and, where available and appropriate, across a specific territory. Management has used a forward-looking equity market risk premium that takes into consideration both studies by independent economists, the average equity market risk premium over the past ten years and the market risk premiums typically used by investment banks in evaluating acquisition proposals.

Year ended 31 March 2013

During the year ended 31 March 2013 impairment charges of £4,500 million and £3,200 million were recorded in respect of the Group’s investments in Italy and Spain respectively. The impairment charges relate solely to goodwill.

The impairment charges were driven by a combination of lower projected cash flows within business plans, resulting from our reassessment of expected future business performance in light of current trading and economic conditions and adverse movements in discount rates driven by the credit rating and yields on ten year government bonds.

The table below shows the key assumptions used in the value in use calculations.

 

		Assumptions used in value in use calculation
		Italy %				Spain %				Germany %				Greece %				Portugal %				Romania %
Pre-tax risk adjusted discount rate			11.3				12.2				9.6				23.9				11.2				11.2
Long-term growth rate			0.5				1.9				1.4				1.0				0.4				3.0
Budgeted adjusted EBITDA1			(0.2	)			1.7				2.5				0.4				(1.5	)			0.8
Budgeted capital expenditure2			9.9–15.2				11.2–15.2				11.3–12.6				7.8–11.0				10.0–18.9				10.1–15.5

Notes:

1	Budgeted 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	Budgeted capital expenditure is expressed as the range of capital expenditure as a percentage of revenue in the initial five years for all cash generating units of the plans used for impairment testing.

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Notes to the consolidated financial statements (continued)

 

 

12. Impairment review (continued)

Sensitivity analysis

The table below shows, for India and Romania, the amount by which each key assumption must change in isolation in order for the estimated recoverable amount to be equal to its carrying value.

 

		Change required for carrying value to equal the recoverable amount
		India pps				Romania pps
Pre-tax risk adjusted discount rate			1.1				0.3
Long-term growth rate			(1.6	)			(0.4	)
Budgeted adjusted EBITDA1			(3.3	)			(0.6	)
Budgeted capital expenditure2			3.6				1.0

Notes:

1	Budgeted 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	Budgeted capital expenditure is expressed as a percentage of revenue in the initial five years for all the cash generating units of the plans used for impairment testing.

Year ended 31 March 2011

During the year ended 31 March 2011 impairment charges of £1,050 million, £2,950 million, £800 million, £1,000 million and £350 million were recorded in respect of the Group’s investments in Italy, Spain, Greece, Ireland and Portugal, respectively. The impairment charges related solely to goodwill.

The impairment charges were primarily driven by increased discount rates as a result of increases in government bond rates. In addition, business valuations were negatively impacted by lower cash flows within business plans, reflecting weaker country-level macroeconomic environments.

The table below shows the pre-tax adjusted discount rates used in the value in use calculations.

 

		Assumptions used in value in use calculation
		Italy %				Spain %				Greece %				Ireland %				Portugal %
Pre-tax risk adjusted discount rate			11.9				11.5				14.0				14.5				14.0

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Notes to the consolidated financial statements (continued)

 

 

14. Investments in joint ventures

We hold interests in several joint ventures that are companies where we share control with one or more third parties, with our business in Italy being the most significant. The principal joint ventures at 31 March 2013, as well as their impact on the Group’s consolidated financial statements, are shown below. We record our share of results, assets, liabilities and cash flows on a line by line basis in Group’s financial statements.

Unless otherwise stated the Company’s principal joint ventures all have share capital consisting solely of ordinary shares, which are indirectly held, and the country of incorporation or registration is also their principal place of operation.

 

Name

Principal activity

Country of incorporation or registration

Percentage1 shareholdings

Indus Towers Limited

Network infrastructure

India

35.5

2

Vodafone Hutchison Australia Pty Limited3

Network operator

Australia

50.0

Vodafone Fiji Limited

Network operator

Fiji

49.0

4

Cornerstone Telecommunications Infrastructure Limited

Network infrastructure

UK

50.0

Vodafone Omnitel N.V.5

Network operator

Netherlands

76.9

6

Notes:

1	Effective ownership percentages of Vodafone Group Plc at 31 March 2013, rounded to the nearest tenth of one percent.

2	42% of Indus Towers Limited is held by Vodafone India Limited (‘VIL’) in which, as discussed in note A8, footnote 5, the Group had a 64.4% interest through wholly-owned subsidiaries and a further 20.1% indirectly through less than 50% owned entities.

3	Vodafone Hutchison Australia Pty Limited has a year end of 31 December.

4	The Group holds substantive participating rights which provide it with a veto over the significant financial and operating policies of Vodafone Fiji Limited and which ensure it is able to exercise joint control over Vodafone Fiji Limited with the majority shareholder.

5	The principal place of operation of Vodafone Omnitel N.V. is Italy.

6

The Group considered the existence of substantive participating rights held by the non-controlling shareholder provide that shareholder with a veto right over the significant financial and operating policies of Vodafone Omnitel N.V., and determined that, as a result of these rights, the Group does not have control over the financial and operating policies of Vodafone Omnitel N.V., despite the Group’s 76.9% ownership interest.

Effect of proportionate consolidation of joint ventures

The following table presents, on a condensed basis, the effect on the consolidated financial statements of including joint ventures using proportionate consolidation. The results of Polkomtel are included until its disposal on 9 November 2011.

 

		2013  £m				2012 £m				2011 £m
Revenue			6,431				7,436				7,849
Cost of sales			(3,976	)			(4,483	)			(4,200	)
Gross profit			2,455				2,953				3,649
Selling, distribution and administrative expenses			(1,459	)			(1,231	)			(1,624	)
Impairment losses			(4,500	)			(2,450	)			(1,050	)
Other income and expense			(3	)			296				–
Operating (loss)/profit			(3,507	)			(432	)			975
Net financing costs			(137	)			(141	)			(146	)
(Loss)/profit before tax			(3,644	)			(573	)			829
Income tax expense			(374	)			(552	)			(608	)
(Loss)/profit for the financial year			(4,018	)			(1,125	)			221
						2013  £m				2012 £m
Non-current assets							11,041				15,707
Current assets							1,733				911
Total assets							12,774				16,618
Total shareholders’ funds and total equity							8,246				12,574
Non-current liabilities							1,595				1,721
Current liabilities							2,933				2,323
Total liabilities							4,528				4,044
Total equity and liabilities							12,774				16,618

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Notes to the consolidated financial statements (continued)

 

 

16. Other investments (continued)

 

		2013 £m				2012 £m
Included within current assets:
Public debt and bonds			1,130				900
Other debt and bonds			3,816				90
Cash held in restricted deposits			404				333
			5,350				1,323

Other debt and bonds includes £3,812 million of assets held for trading which include £3,000 million (2012: £nil) of assets held in managed investment funds with liquidity of up to 90 days, £643 million (2012: £nil) of short-term securitised investments with original maturities of up to eight months, and collateral paid on derivative financial instruments of £169 million (2012: £87 million).

Current public debt and bonds include government bonds of £1,076 million (2012: £900 million) which consist of highly liquid index linked gilts with less than six years to maturity held on an effective floating rate basis.

For public debt and bonds, other debt and bonds and cash held in restricted deposits, the carrying amount approximates fair value.

 

17. Trade and other receivables

Our trade and other receivables mainly consist of amounts owed to us by customers and amounts that we pay to our suppliers in advance. Trade receivables are shown net of an allowance for bad or doubtful debts. Derivative financial instruments with a positive market value are reported within this note.

 

		2013 £m				2012 £m
Included within non-current assets:
Trade receivables			181				120
Other receivables			675				235
Prepayments and accrued income			502				326
Derivative financial instruments			2,944				2,801
			4,302				3,482
Included within current assets:
Trade receivables			3,995				3,885
Amounts owed by associates			21				15
Other receivables			1,202				2,984
Prepayments and accrued income			4,106				3,702
Derivative financial instruments			88				158
			9,412				10,744

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:

 

		2013 £m				2012 £m				2011 £m
1 April			1,014				1,006				929
Exchange movements			(3	)			(64	)			(30	)
Amounts charged to administrative expenses			458				458				460
Trade receivables written off			(504	)			(386	)			(353	)
31 March			965				1,014				1,006

The carrying amounts of trade and other receivables approximate their fair value. Trade and other receivables are predominantly non-interest bearing.

 

		2013 £m				2012 £m
Included within “Derivative financial instruments”:
Fair value through the income statement (held for trading):
Interest rate swaps			1,508				1,196
Cross currency interest rate swaps			319				318
Foreign exchange swaps			88				128
			1,915				1,642
Fair value hedges:
Interest rate swaps			1,117				1,317
			3,032				2,959

The fair values of these 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.

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Notes to the consolidated financial statements (continued)

 

 

19. 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. The amount provided is therefore often estimated. The main provisions we hold are in relation to asset retirement obligations and claims for legal and regulatory matters. Asset retirement obligations include the cost of returning network infrastructure sites to their original condition at the end of the lease.

 

		Asset retirement obligations £m				Legal and regulatory £m				Other £m				Total £m
1 April 2011			315				270				456				1,041
Exchange movements			(19	)			(12	)			(26	)			(57	)
Amounts capitalised in the year			37				–				–				37
Amounts charged to the income statement			–				50				209				259
Utilised in the year – payments			(4	)			(25	)			(164	)			(193	)
Amounts released to the income statement			–				(6	)			(47	)			(53	)
Other			(10	)			33				55				78
31 March 2012			319				310				483				1,112
Exchange movements			(2	)			5				(5	)			(2	)
Arising on acquisition			147				8				109				264
Amounts capitalised in the year			68				–				–				68
Amounts charged to the income statement			–				59				308				367
Utilised in the year – payments			(7	)			(42	)			(174	)			(223	)
Amounts released to the income statement			–				(17	)			(23	)			(40	)
Other			(3	)			180				2				179
31 March 2013			522				503				700				1,725

Provisions have been analysed between current and non-current as follows:

31 March 2013

 

		Asset retirement obligations £m				Legal and regulatory £m				Other £m				Total £m
Current liabilities			20				262				536				818
Non-current liabilities			502				241				164				907
			522				503				700				1,725
31 March 2012
		Asset retirement obligations £m				Legal and regulatory £m				Other £m				Total £m
Current liabilities			15				225				393				633
Non-current liabilities			304				85				90				479
			319				310				483				1,112

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 exiting and ceasing their use. The associated cash outflows are substantially expected to occur at the dates of exit of the assets to which they relate, which are long-term in nature, primarily in periods up to 25 years from when the asset is brought into use.

Legal and regulatory

The Group is involved in a number of legal and other disputes, including notifications of possible claims. The directors of the Company, after taking legal advice, have established provisions after taking into account the facts of each case. The timing of cash outflows associated with the majority of legal claims are typically less than one year, however, for some legal claims the timing of cash flows may be long-term in nature. For a discussion of certain legal issues potentially affecting the Group refer to note 21.

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.

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Notes to the consolidated financial statements (continued)

 

 

21. Contingent liabilities (continued)

UK pension schemes

The Company has covenanted to provide security in favour of the Trustee of the Vodafone Group UK Pension Scheme whilst there is a deficit in the scheme. The deficit is measured on a prescribed basis agreed between the Company and Trustee. In 2010 the Company and Trustee agreed security of a charge over UK index linked gilts (‘ILG’) held by the Company. An initial charge in favour of the Trustee was agreed over ILG 2016 with a notional value of £100 million and ILG 2013 with a notional value of £48.9 million to secure the deficit at that time of approximately £450 million. In December 2011, the security was increased by an additional charge over ILG 2017 with a notional value of £177.7 million due to an increase in the deficit. The security may be substituted either on a voluntary or mandatory basis. As and when alternative security is provided, the Company has agreed that the security cover should include additional headroom of 33%, although if cash is used as the security asset the ratio will revert to 100% of the relevant liabilities or where the proposed replacement security asset is listed on an internationally recognised stock exchange in certain core jurisdictions, the Trustee may decide to agree a lower ratio than 133%. The Company has also provided two guarantees to the scheme for a combined value up to €1.5 billion to provide security over the deficit under certain defined circumstances, including insolvency of the employers.

The Company has also agreed similar guarantees for the Trustees of the Cable & Wireless Worldwide Retirement Plan and THUS Plc Group Scheme up to £1.25 billion and £110 million respectively, following the acquisition of Cable & Wireless Worldwide plc.

Legal proceedings

The Company and its subsidiaries are currently, and may be from time to time, 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 and its subsidiaries are not currently involved in 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 significant effect on the financial position or profitability of the Company and its subsidiaries. Due to inherent uncertainties, no accurate quantification of any cost, or timing of such cost, which may arise from any of the legal proceedings outlined below can be made.

Telecom Egypt arbitration

In October 2009 Telecom Egypt commenced arbitration against Vodafone Egypt in Cairo alleging breach of non-discrimination provisions in an interconnection agreement as a result of allegedly lower interconnection rates paid to Vodafone Egypt by Mobinil. Telecom Egypt has also sought to join Vodafone International Holdings BV (‘VIHBV’), Vodafone Europe BV (‘VEBV’) and Vodafone Group Plc (which Telecom Egypt alleges should be held jointly liable with Vodafone Egypt) to the arbitration. VIHBV, VEBV and Vodafone Group Plc deny that they were subject to the interconnection agreement or any arbitration agreement with Telecom Egypt. Telecom Egypt initially quantified its claim at approximately €190 million in 2009. This was subsequently amended and increased to €551 million in January 2011 and further increased to its current value of just over €1.2 billion in November 2011. The Company disputes Telecom Egypt’s claim (and assertion of jurisdiction over VIHBV, VEBV and Vodafone Group Plc) and will continue to defend the Vodafone companies’ position vigorously. Final submissions were submitted on 5 February 2013. The arbitration hearing, previously scheduled to last 15 days, commencing 7 May 2013, has been postponed. No new date for the hearing has yet been set.

Indian tax case

In August 2007 and September 2007, Vodafone India Limited (‘VIL’) and VIHBV respectively received notices from the Indian tax authority alleging potential liability in connection with an alleged failure by VIHBV to deduct withholding tax from consideration paid to the Hutchison Telecommunications International Limited group (‘HTIL’) in respect of HTIL’s gain on its disposal to VIHBV of its interests in a wholly-owned subsidiary that indirectly holds interests in VIL. In January 2012 the Indian Supreme Court handed down its judgment, holding that VIHBV’s interpretation of the Income Tax Act 1961 was correct, that the HTIL transaction in 2007 was not taxable in India, and that, consequently, VIHBV had no obligation to withhold tax from consideration paid to HTIL in respect of the transaction. The Indian Supreme Court quashed the relevant notices and demands issued to VIHBV in respect of withholding tax and interest. On 20 March 2012 the Indian government returned VIHBV’s deposit of INR 25 billion (£310 million) and released the guarantee for INR 85 billion (£1.2 billion), which was based on the demand for payment issued by the Indian tax authority in October 2010 for tax of INR 79 billion (£0.9 billion) plus interest.

On 16 March 2012 the Indian government introduced proposed legislation (the ‘Finance Bill 2012’) purporting to overturn the Indian Supreme Court judgment with retrospective effect back to 1962. On 17 April 2012 Vodafone International Holdings BV (‘VIHBV’) filed a trigger notice under the Dutch-India Bilateral Investment Treaty (‘BIT’) signalling its intent to invoke arbitration under the BIT should the new laws be enacted. The Finance Bill 2012 received Presidential assent and became law on 28 May 2012 (the ‘Finance Act 2012’). The Finance Act 2012 is 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.

The Indian Government commissioned a committee of experts (the ‘Shome committee’) consisting of academics, and current and former Indian government officials, to examine, and make recommendations in respect of, aspects of the Finance Act 2012 including the retrospective taxation of transactions such as VIHBV’s transaction with HTIL referred to above. On 10 October 2012 the Shome committee published its draft report for comment. The draft report concluded that tax legislation in the Finance Act 2012 should only be applied prospectively or, if applied retrospectively, that only a seller who made a gain should be liable and, in that case, without any liability for interest or penalties. The Shome committee’s final report was submitted to the Indian Government on 31 October 2012, but no final report has been published, and it remains unclear what the Indian Government intends to do with the Shome committee’s final report or its recommendations.

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Notes to the consolidated financial statements (continued)

 

 

24. 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. Our key borrowings at 31 March 2013 consist of bond and commercial paper issues and bank loans. Details of our committed facilities can be found on page 157. 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. Fair value hedges are designated for some of the Group’s bonds where interest rate swaps have been entered to convert the basis of future cash flows to floating interest rates. The Group enters into foreign exchange contracts to mitigate the impact of exchange rate movements on certain monetary items.

Carrying value and fair value information

		2013														2012
		Short-term         borrowings £m				Long-term         borrowings £m				Total £m						Short-term borrowings £m				Long-term         borrowings £m				Total £m
Financial liabilities measured at amortised cost:
Bank loans			2,929				4,281				7,210						1,635				5,624				7,259
Bank overdrafts			25				–				25						50				–				50
Redeemable preference shares			–				1,355				1,355						–				1,281				1,281
Commercial paper			4,054				–				4,054						2,272				–				2,272
Bonds			2,133				15,698				17,831						1,289				14,463				15,752
Other liabilities1 2			3,148				753				3,901						1,012				2,417				3,429
Bonds in fair value hedge relationships			–				7,021				7,021						–				4,577				4,577
			12,289				29,108				41,397						6,258				28,362				34,620

Notes:

1	At 31 March 2013 amount includes £1,151 million (2012: £980 million) in relation to collateral support agreements.

2	Amount at 31 March 2013 includes £1,014 million (2012: £840 million) in relation to the options disclosed in note A8, footnote 5. The amount for 2013 includes £899 million (2012: £771 million) in relation to the Piramal Healthcare option detailed on page 158.

Bank loans include INR 249 billion of loans held by Vodafone India Limited (‘VIL’) and its subsidiaries (the ‘VIL Group’). The VIL Group has a number of security arrangements supporting certain licences secured under the terms of tri-party agreements between the relevant borrower, the department of telecommunications, Government of India and the agent representing the secured lenders and certain share pledges of the shares under VIL. The terms and conditions of the security arrangements mean that should members of the VIL Group not meet all of their loan payment and performance obligations, the lenders may sell the pledged shares and enforce rights over the certain licences under the terms of the tri-party agreements to recover their losses, with any remaining sales proceeds being returned to the VIL Group. Each of the eight legal entities within the VIL Group provide cross guarantees to the lenders in respect to debt contracted by the other seven.

The fair value and carrying value of the Group’s short-term borrowings is as follows:

 

		Sterling equivalent nominal value										Fair value										Carrying value
		2013 £m				2012 £m						2013 £m				2012 £m						2013 £m				2012 £m
Financial liabilities measured at amortised cost			9,869				4,915						10,279				4,977						10,156				4,969
Bonds:			2,094				1,267						2,150				1,288						2,133				1,289
1.15% US dollar 100 million bond due August 2012			–				63						–				63						–				63
3.625% euro 1,250 million bond due November 2012			–				1,032						–				1,051						–				1,050
6.75% Australian dollar 265 million bond due January 2013			–				172						–				174						–				176
Czech koruna floating rate note due June 2013			18				–						18				–						18				–
Euro floating rate note due September 2013			646				–						647				–						645				–
5.0% US dollar 1,000 million bond due December 2013			658				–						679				–						678				–
6.875% euro 1,000 million bond due December 2013			772				–						806				–						792				–
Short-term borrowings			11,963				6,182						12,429				6,265						12,289				6,258

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Notes to the consolidated financial statements (continued)

 

 

 

24. Borrowings (continued)

Maturity of borrowings

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:

		Bank loans £m				Redeemable preference shares £m				Commercial paper £m				Bonds £m				Other       liabilities £m				Loans in fair value hedge       relationships £m				Total £m
Within one year			3,390				56				4,070				2,946				2,263				277				13,002
In one to two years			590				56				–				3,313				138				870				4,967
In two to three years			484				56				–				4,753				1,101				266				6,660
In three to four years			1,534				56				–				1,636				599				245				4,070
In four to five years			1,080				56				–				3,156				72				245				4,609
In more than five years			1,946				1,212				–				5,877				52				7,913				17,000
			9,024				1,492				4,070				21,681				4,225				9,816				50,308
Effect of discount/financing rates			(1,814	)			(137	)			(16	)			(3,850	)			(299	)			(2,795	)			(8,911	)
31 March 2013			7,210				1,355				4,054				17,831				3,926				7,021				41,397
Within one year			684				56				2,283				2,000				1,044				199				6,266
In one to two years			2,983				56				–				2,828				771				199				6,837
In two to three years			567				56				–				3,197				–				762				4,582
In three to four years			1,316				56				–				3,536				1,235				191				6,334
In four to five years			1,574				56				–				1,541				726				169				4,066
In more than five years			1,466				1,214				–				6,780				69				4,465				13,994
			8,590				1,494				2,283				19,882				3,845				5,985				42,079
Effect of discount/financing rates			(1,331	)			(213	)			(11	)			(4,130	)			(366	)			(1,408	)			(7,459	)
31 March 2012			7,259				1,281				2,272				15,752				3,479				4,577				34,620

The maturity profile of the Group’s financial derivatives (which include interest rate and foreign exchange swaps), using undiscounted cash flows, is as follows:

		2013										2012
		Payable £m				Receivable £m						Payable £m				Receivable £m
Within one year			10,671				11,020						14,357				14,498
In one to two years			1,014				1,214						675				786
In two to three years			1,308				1,495						561				678
In three to four years			2,803				3,087						540				641
In four to five years			581				780						402				520
In more than five years			3,579				4,454						2,533				3,566
			19,956				22,050						19,068				20,689
The currency split of the Group’s foreign exchange derivatives is as follows:
		2013										2012
		Payable £m				Receivable £m						Payable £m				Receivable £m
Sterling			2,365				4,477						1,287				7,070
Euro			6,583				602						4,793				2,613
US dollar			348				6,130						4,415				2,445
Japanese yen			669				1,296						2,207				23
Other			3,945				1,768						962				1,552
			13,910				14,273						13,664				13,703

Payables and receivables are stated separately in the table above as settlement is on a gross basis. The £363 million net receivable (2012: £39 million net receivable) in relation to foreign exchange financial instruments in the table above is split £44 million (2012: £89 million) within trade and other payables and £407 million (2012: £128 million) within trade and other receivables.

The present value of minimum lease payments under finance lease arrangements under which the Group has leased certain of its equipment is analysed as follows:

		2013 £m				2012 £m
Within one year			37				18
In two to five years			42				34
In more than five years			53				34

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128		Vodafone Group Plc   Annual Report 2013
Notes to the consolidated financial statements (continued)

 

 

 

24. Borrowings (continued)

Borrowing facilities

Committed facilities expiry

		2013										2012
		Drawn £m				Undrawn £m						Drawn £m				Undrawn £m
Within one year			2,518				837						2,130				451
In one to two years			1,546				50						3,294				592
In two to three years			1,288				3,569						1,746				–
In three to four years			1,142				2,794						904				3,527
In four to five years			–				–						571				23
In more than five years			1,188				422						794				3,272
31 March			7,682				7,672						9,439				7,865

At 31 March the Group’s most significant committed facilities comprised two revolving credit facilities which remain undrawn throughout the period of €4,230 million (£3,569 million) and US$4,245 million (£2,794 million) maturing in three and five years respectively. Under the terms of these bank facilities, lenders have the right, but not the obligation, to cancel their commitment 30 days from the date of notification of a change of control of the Company and have outstanding advances repaid on the last day of the current interest period. The facility agreements provide for certain structural changes that do not affect the obligations of the Company to be specifically excluded from the definition of a change of control. This is in addition to the rights of lenders to cancel their commitment if the Company has committed an event of default.

The terms and conditions of the drawn facilities in the Group’s Turkish and Italian operating companies of €400 million and €350 million respectively and in the Group’s German, Turkish and Romanian fixed line operations of €410 million, €150 million and €150 million respectively in addition to the undrawn facilities in the Group’s fixed line operations in Italy and Turkey of €400 million and €100 million respectively, are similar to those of the US dollar and euro revolving credit facilities. In addition, should the Group’s Turkish operating company spend less than the equivalent of US$800 million on capital expenditure the Group will be required to repay the drawn amount of the facility that exceeds 50% of the capital expenditure and should the Group’s Italian operating company spend less than the equivalent of €1,500 million on capital expenditure, the Group will be required to repay the drawn amount of the facility that exceeds 18% of the capital expenditure. Similarly should the Group’s German, Italian or Romanian fixed line operations spend less that the equivalent of €824 million, €1,252 million and €1,246 million on capital expenditure respectively, the Group will be required to repay the drawn amount of the facility that exceeds 50% of the capital expenditure.

 

25. Called up share capital

Called up share capital is the number of shares in issue at their par value of 11³/₇ US cents each. A number of shares were allotted during the year in relation to employee share option schemes.

		2013										2012
		Number				£m						Number				£m
Ordinary shares of 113/7 US cents each allotted, issued and fully paid:1
1 April			53,815,007,289				3,866						56,811,123,429				4,082
Allotted during the year			5,379,020				–						3,883,860				–
Cancelled during the year			–				–						(3,000,000,000	)			(216	)
31 March			53,820,386,309				3,866						53,815,007,289				3,866

Note:

1

At 31 March 2013 the Group held 4,901,767,844 (2012: 4,169,067,107) treasury shares with a nominal value of £352 million (2012: £299 million). The market value of shares held was £9,147 million (2012: £7,179 million). During the year 161,289,620 (2012: 166,003,556) treasury shares were reissued under Group share option schemes.

Allotted during the year

Number

Nominal value £m

Net     proceeds £m

UK share awards and option scheme awards

9,210

–

–

US share awards and option scheme awards

5,369,810

–

8

Total for share awards and option scheme awards

5,379,020

–

8

 

26. Subsequent events

Detailed below are the significant events that happened after our year end date of 31 March 2013 and before the signing of this annual report on 21 May 2013.

On 13 May 2013 VZW declared a dividend of US$7.0 billion (£4.6 billion). As a 45% shareholder in VZW, Vodafone’s share of the dividend is US$3.2 billion (£2.1 billion). The dividend will be received by the end of June 2013.

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Notes to the consolidated financial statements (continued)

 

 

 

A1. Significant accounting policies (continued)

Investments in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

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. Losses of an associate in excess of the Group’s interest in that associate are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

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 recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment.

The licences of the Group’s associate in the US, Verizon Wireless, are indefinite lived assets as they are subject to perfunctory renewal. Accordingly, they are not subject to amortisation but are tested annually for impairment, or when indicators exist that the carrying value is not recoverable.

Intangible assets

Identifiable intangible assets are recognised when the Group controls the asset, it is probable that future economic benefits attributed to the asset will flow to the Group and the cost of the asset can be reliably measured.

Goodwill

Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is denominated in the currency of the acquired entity and revalued to the closing exchange rate at each reporting period date.

Goodwill is not subject to amortisation but is tested for impairment.

Negative goodwill arising on an acquisition is recognised directly in the income statement.

On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss recognised in the income statement on disposal.

Goodwill arising before the date of transition to IFRS, on 1 April 2004, has been retained at the previous UK GAAP amounts, subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

Finite lived intangible assets

Intangible assets with finite lives are stated at acquisition or development cost, less accumulated amortisation. The amortisation period and method is reviewed at least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.

Licence and spectrum fees

Amortisation periods for licence and spectrum fees are determined primarily by reference to the unexpired licence period, the conditions for licence renewal and whether licences are dependent on specific technologies. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives from the commencement of related network services.

Computer software

Computer software comprises computer software purchased from third parties as well as the cost of internally developed software. Computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and are probable of producing future economic benefits are recognised as intangible assets. Direct costs include software development employee costs and directly attributable overheads.

Software integral to an item of hardware equipment is classified as property, plant and equipment.

Costs associated with maintaining computer software programs are recognised as an expense when they are incurred.

Internally developed software is recognised only if all of the following conditions are met:

 

g

an asset is created that can be separately identified;

 

g

it is probable that the asset created will generate future economic benefits; and

 

g

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.

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132		Vodafone Group Plc   Annual Report 2013
Notes to the consolidated financial statements (continued)

 

 

A1. Significant accounting policies (continued)

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 received, exclusive of sales taxes and discounts.

The Group principally obtains revenue from providing the following telecommunication services: access charges, airtime usage, messaging, interconnect fees, data services and information provision, connection fees and equipment sales. Products and services may be sold separately or in bundled packages.

Revenue for access charges, airtime usage and messaging by 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 from data services and information provision is recognised when the Group has performed the related service and, depending on the nature of the service, is recognised either at the gross amount billed to the customer or the amount receivable by the Group as commission for facilitating the service.

Customer connection revenue is recognised together with the related equipment revenue to the extent that the aggregate equipment and connection revenue does not exceed the fair value of the equipment delivered to the customer. Any customer connection revenue not recognised together with related equipment revenue is deferred and recognised over the period in which services are expected to be provided to the customer.

Revenue for device sales is recognised when the device is delivered to the end customer and the sale is considered complete. 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 of return. 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 the 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: (1) the deliverable has value to the customer on a stand-alone basis and (2) 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.

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:

 

g

the Group receives an identifiable benefit in exchange for the cash incentive that is separable from sales transactions to that intermediary; and

 

g

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.

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.

Leasing

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.

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Notes to the consolidated financial statements (continued)

 

 

A1. Significant accounting policies (continued)

Taxation

Income tax expense represents the sum of the current tax payable and deferred tax.

Current tax payable or recoverable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because some items of income or expense are taxable or deductible in different years or may never be taxable or deductible. The Group’s liability for current tax is calculated using UK and foreign tax rates and laws that have been enacted or substantively enacted by the reporting period date.

Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that temporary differences or taxable profits will be available against which deductible temporary differences can be utilised.

Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are not recognised to the extent they arise from the initial recognition of non-tax deductible goodwill.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, 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 probability 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.

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.

Trade receivables

Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Estimated irrecoverable amounts are based on the ageing of the receivable balances and historical experience. Individual trade receivables are written off when management deems them not to be collectible.

Other investments

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 cost, including transaction costs.

Other investments classified as held for trading and available-for-sale are stated at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity, determined using the weighted average cost method, is included in the net profit or loss for the period.

Other investments classified as loans and receivables are stated at amortised cost using the effective interest method, less any impairment.

Cash and cash equivalents

Cash and cash equivalents comprise cash on 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.

Trade payables

Trade payables are not interest bearing and are stated at their nominal value.

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Notes to the consolidated financial statements (continued)

 

 

A1. Significant accounting policies (continued)

Net investment hedges

Exchange differences arising from the translation of the net investment in foreign operations are recognised directly in equity. Gains and losses on those hedging instruments (which include bonds, commercial paper and foreign exchange contracts) designated as hedges of the net investments in foreign operations are recognised in equity to the extent that the hedging relationship is effective; these amounts are included in exchange differences on translation of foreign operations as stated in the statement of comprehensive income. Gains and losses relating to hedge ineffectiveness are recognised immediately in the income statement for the period. Gains and losses accumulated in the translation reserve are included in the income statement when the foreign operation is disposed of.

Put option arrangements

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.

Provisions

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.

Share-based payments

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.

Fair value is measured by deducting the present value of expected dividend cash flows over the life of the awards from the share price as at the grant date.

Some share awards have an attached market condition, based on total shareholder return (‘TSR’), which is taken into account when calculating the fair value of the share awards. The valuation for the TSR is based on Vodafone’s ranking within the same group of companies, where possible, over the past five years.

The fair value of awards of non-vested shares is equal to the closing price of the Group’s shares on the date of grant, adjusted for the present value of future dividend entitlements where appropriate.

 

A2. Segment analysis

The Group’s businesses are primarily managed on a geographical basis. Selected financial data is presented on this basis below.

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. Inter-segment sales are charged at arm’s length prices.

During the year ended 31 March 2013 the Group changed its organisation structure. The Northern and Central Europe region comprises Germany, the UK, the Netherlands, Turkey, the Czech Republic, Hungary, Ireland and Romania. The Southern Europe region comprises Italy, Spain, Greece, Portugal, Albania and Malta. The tables below present segment information on the revised basis, with prior years amended to conform to the current year presentation.

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Notes to the consolidated financial statements (continued)

 

 

A2. Segment analysis (continued)

A reconciliation of adjusted EBITDA to operating profit is shown below. For a reconciliation of operating profit to profit before taxation, see the consolidated income statement on page 90.

		2013 £m				2012 £m				2011 £m
Adjusted EBITDA			13,275				14,475				14,670
Depreciation, amortisation and loss on disposal of fixed assets			(7,792	)			(7,906	)			(7,967	)
Share of results in associates			6,477				4,963				5,059
Impairment losses			(7,700	)			(4,050	)			(6,150	)
Other income and expense			468				3,705				(16	)
Operating profit			4,728				11,187				5,596

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Notes to the consolidated financial statements (continued)

 

 

A3. Inventory

Our inventory primarily consists of mobile handsets and is presented net of an allowance for obsolete products.

		2013 £m				2012 £m
Goods held for resale			450				486

Inventory is reported net of allowances for obsolescence, an analysis of which is as follows:

 

		2013 £m				2012 £m				2011 £m
1 April			109				117				120
Exchange movements			7				(8	)			(1	)
Amounts credited to the income statement			–				–				(2	)
31 March			116				109				117

Cost of sales includes amounts related to inventory amounting to £5,967 million (2012: £6,327 million; 2011: £5,878 million).

 

A4. Share-based payments

We have a number of share plans used to award options and shares to directors and employees as part of their remuneration package. A charge is recognised in the consolidated income statement to record the cost of these, based on the fair value of the award on the grant date. For further information on how this is calculated refer to “Share-based payments” under significant accounting policies on page 136.

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:

 

g

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

 

g

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 2013.

There are options outstanding under the Vodafone Group 1999 Long-Term Stock Incentive Plan and the Vodafone Global Incentive Plan. These options are normally exercisable between three and ten years from the date of grant. The vesting of some of these options is subject to satisfaction of performance conditions. Grants made to US employees are made in respect of ADSs.

Vodafone Group Sharesave Plan

The Vodafone Group 2008 Sharesave Plan enables UK staff to acquire shares in the Company through monthly savings of up to £250 over a three and/or five year period, at the end of which they may also receive a tax free bonus. The savings and bonus may then be used to purchase shares at the option price, which is set at the beginning of the invitation period and usually at a discount of 20% to the then prevailing market price of the Company’s shares.

Share plans

Vodafone Group executive plans

Under the Vodafone Global Incentive Plan awards of shares are granted to directors and certain employees. The release of these shares is conditional upon continued employment and for some awards achievement of certain performance targets measured over a three year period.

Vodafone Share Incentive Plan

The Vodafone Share Incentive Plan enables UK staff to acquire shares in the Company through monthly purchases of up to £125 per month or 5% of salary, whichever is lower. For each share purchased by the employee, the Company provides a free matching share.

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Notes to the consolidated financial statements (continued)

 

 

 

A5. Post employment benefits

We operate a number of defined benefit and defined contribution pension plans for our employees. The Group’s largest defined benefit schemes are in the UK.

Background

At 31 March 2013 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, Ireland, Italy, India, the UK and the US. Defined contribution pension schemes are currently provided in Australia, Egypt, Germany, Greece, Hungary, Ireland, Italy, Malta, the Netherlands, New Zealand, Portugal, South Africa, Spain, the UK and the US. The Group’s principal defined benefit pension schemes in the UK, being the Vodafone Group Plc Pension Scheme (‘Vodafone UK plan’) and the Cable & Wireless Worldwide Retirement Plan (‘CWWRP’), are closed to new entrants and additionally the Vodafone UK plan has been closed to future accrual for existing members since 31 March 2010.

Income statement expense

		2013 £m				2012 £m				2011 £m
Defined contribution schemes			147				145				130
Defined benefit schemes			20				(2	)			4
Total amount charged to the income statement (note 5)			167				143				134

Defined benefit schemes

The principal actuarial assumptions used for estimating the Group’s benefit obligations are set out below:

			2013 %	1			2012 %	1			2011 %	1
Weighted average actuarial assumptions used at 31 March:
Rate of inflation			3.3				3.0				3.1
Rate of increase in salaries			3.8				2.9				2.9
Rate of increase in pensions in payment and deferred pensions			3.3				3.0				3.1
Discount rate			4.3				4.7				5.6
Expected rates of return:
Equities			–	3			7.4				8.2
Bonds2			–	3			4.2				5.1

Notes:

1	Figures shown represent a weighted average assumption of the individual schemes.

2	For the year ended 31 March 2012 the expected rate of return for bonds consisted of a 4.6% rate of return for corporate bonds (2011: 5.3%) and a 2.6% rate of return for government bonds (2011: 3.6%).

3	Under amendments to IAS 19, “Employee Benefits”, that will be adopted by the Group from 1 April 2013, the expected rate of return of pension plan assets will no longer be utilised in determining the pension plan costs recorded in the consolidated income statement.

The expected return on assets assumptions are derived by considering the expected long-term rates of return on plan investments. The overall rate of return is a weighted average of the expected returns of the individual investments made in the Group plans. The long-term rates of return on equities are derived from considering current risk free rates of return with the addition of an appropriate future risk premium from an analysis of historic returns in various countries. The long-term rates of return on bonds are set in line with market yields currently available at the statement of financial position date.

Mortality assumptions used are based on recommendations from the individual scheme actuaries which include adjustments for the experience of the Group where appropriate. The largest schemes in the Group are the UK schemes. Further life expectancies assumed for the UK schemes (Vodafone UK plan only in 2012 and 2011) are 23.6/25.3 years (2012: 23.6/24.4 years; 2011: 23.5/24.3 years) for a male/female pensioner currently aged 65 and 26.8/27.9 years (2012: 27.2/26.7 years; 2011: 27.0/26.6 years) from age 65 for a male/female non-pensioner member currently aged 40.

Measurement of the Group’s defined benefit retirement obligations is particularly sensitive to changes in certain key assumptions including the discount rate. An increase or decrease in the discount rate of 0.5% would result in a £409 million decrease or a £467 million increase in the defined benefit obligation respectively.

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Notes to the consolidated financial statements (continued)

 

 

A5. Post employment benefits (continued)

Actual return on pension assets

 

		2013 £m				2012 £m				2011 £m
Actual return on pension assets			335				69				97
Analysis of pension assets at 31 March is as follows:			%				%				%
Equities			43.0				60.1				61.6
Bonds			33.8				37.1				36.5
Property			1.0				0.3				0.3
Annuity policies			13.9				–				–
Other			8.3				2.5				1.6
			100.0				100.0				100.0

The schemes have no direct investments in the Group’s equity securities or in property currently used by the Group.

History of experience adjustments

 

		2013 £m				2012 £m				2011 £m				2010 £m				2009 £m
Experience adjustments on pension liabilities:
Amount			(7	)			(21	)			23				8				6
Percentage of pension liabilities			–				(1%	)			1%				–				–
Experience adjustments on pension assets:
Amount			189				(30	)			(6	)			286				(381	)
Percentage of pension assets			5%				(2%	)			–				19%				(35%	)

 

A6. Capital and financial risk management

This note details our treasury management and financial risk management objectives and policies, as well as the exposure and sensitivity of the Group to credit, liquidity, interest and foreign exchange risk, and the policies in place to monitor and manage these risks.

Capital management

The following table summarises the capital of the Group:

 

		2013 £m				2012 £m
Financial assets:
Cash and cash equivalents			(7,623	)			(7,138	)
Fair value through the income statement (held for trading)			(6,803	)			(2,629	)
Derivative instruments in designated hedge relationships			(1,117	)			(1,317	)
Financial liabilities:
Fair value through the income statements (held for trading)			1,060				889
Derivative instruments in designated hedge relationships			44				–
Financial liabilities held at amortised cost			41,397				34,620
Net debt			26,958				24,425
Equity			72,488				78,202
Capital			99,446				102,627

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. The Group complied with these ratios throughout the financial year.

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Notes to the consolidated financial statements (continued)

 

 

A6. Capital and financial risk management (continued)

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 2013 £2,200 million (2012: £1,806 million) of trade receivables were not yet due for payment. Total trade receivables consisted of £1,547 million (2012: £1,288 million) relating to the Northern and Central Europe region, £1,415 million (2012: £1,384 million) relating to the Southern Europe region and £1,214 million (2012: £1,333 million) relating to the Africa, Middle East and Asia Pacific region. Accounts 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.

 

		2013														2012
		Gross         receivables £m				Less         provisions £m				Net         receivables £m						Gross         receivables £m				Less         provisions £m				Net         receivables £m
30 days or less			1,821				(404	)			1,417						1,914				(390	)			1,524
Between 31–60 days			185				(21	)			164						192				(21	)			171
Between 61–180 days			235				(53	)			182						435				(96	)			339
Greater than 180 days			636				(423	)			213						598				(433	)			165
			2,877				(901	)			1,976						3,139				(940	)			2,199

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 2013 were £458 million (2012: £458 million; 2011: £460 million) (see note 17).

The Group’s investments in preferred equity and a subordinated loan received as part of the disposal of Vodafone Japan to SoftBank in the 2007 financial year were disposed of in the year ended 31 March 2011. On 2 April 2012 the Group received £1,499 million in relation to the second tranche of consideration receivable in relation to the disposal.

As discussed in note 21 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 2013 the Group had €4.2 billion and US$4.2 billion syndicated committed undrawn bank facilities and US$15 billion and £5 billion commercial paper programmes, supported by the €4.2 billion and US$4.2 billion syndicated committed bank facilities, available to manage its liquidity. 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.

€4.2 billion of the syndicated committed facility has a maturity date of 1 July 2015. US$4.1 billion has a maturity of 9 March 2017; the remaining US$0.1 billion has a maturity of 9 March 2016. 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 maturing in any one calendar year, therefore minimising refinancing risk. Long-term borrowings mature between one and 30 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 2013 amounted to £7,623 million (2012: £7,138 million).

Market risk

Interest rate management

Under the Group’s interest rate management policy, interest rates on monetary assets and liabilities denominated in euros, US dollars and sterling are maintained on a floating rate basis except for periods up to six years where interest rate fixing has to be undertaken in accordance with treasury policy. Where assets and liabilities are denominated in other currencies interest rates may also be fixed. In addition, fixing is undertaken for longer periods when interest rates are statistically low.

For each one hundred basis point fall or rise in market interest rates for all currencies in which the Group had borrowings at 31 March 2013 there would be a reduction or increase in profit before tax by approximately £144 million (2012: increase or reduce by £33 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.

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Notes to the consolidated financial statements (continued)

 

 

A7. Related party transactions

The Group has a number of related parties including joint ventures (refer to note 14), associates (refer to note 15), pension schemes (refer to note A5 for the Group’s contributions), directors and Executive Committee members (refer to note 4 for amounts paid to them).

Transactions with joint ventures and associates

Related party transactions with the Group’s joint ventures and associates primarily comprise fees for the use of products and services including network airtime and access charges, and cash pooling arrangements.

No related party transactions have been entered into during the year which might reasonably affect any decisions made by the users of these consolidated financial statements except as disclosed below. Transactions between the Company and its joint ventures are not material to the extent that they have not been eliminated through proportionate consolidation or disclosed below.

 

		2013 £m				2012 £m				2011 £m
Sales of goods and services to associates			241				195				327
Purchase of goods and services from associates			105				107				171
Purchase of goods and services from joint ventures			329				207				206
Net interest receivable from joint ventures1			(14	)			(7	)			(14	)
Trade balances owed:
by associates			21				15				52
to associates			19				18				23
by joint ventures			119				9				27
to joint ventures			27				89				67
Other balances owed by joint ventures1			337				365				176

Note:

1	Amounts arise primarily through Vodafone Italy, Vodafone Hutchison Australia, Indus Towers and Cornerstone, and represent amounts not eliminated on consolidation. Interest is paid in line with market rates.

Amounts owed by and owed to associates are disclosed within notes 17 and 18. Dividends received from associates are disclosed in the consolidated statement of cash flows.

Transactions with directors other than compensation

During the three years ended 31 March 2013, and as of 20 May 2013, neither any 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 2013, and as of 20 May 2013, 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.

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Notes to the consolidated financial statements (continued)

 

 

A9. Subsidiaries exempt from audit

The following UK subsidiaries will take advantage of the newly available audit exemption set out within section 479A of the Companies Act 2006 for the year ended 31 March 2013.

 

Name		Registration number
Vodafone 2.			4083193
Vodafone 4 UK			6357658
Vodafone 5 Limited			6688527
Vodafone 5 UK			2960479
Vodafone Americas 4			6389457
Vodafone Benelux Limited			4200960
Vodafone Cellular Limited			896318
Vodafone Consolidated Holdings Limited			5754561
Vodafone Euro Hedging Limited			3954207
Vodafone Euro Hedging Two			4055111
Vodafone European Investments			3961908
Vodafone European Portal Limited			3973442
Vodafone Europe UK			5798451
Vodafone Finance Luxembourg Limited			5754479
Vodafone Finance Sweden			2139168
Vodafone Finance UK Limited			3922620
Vodafone Financial Operations			4016558
Vodafone Global Content Services Limited			4064873
Vodafone Holdings Luxembourg Limited			4200970
Vodafone Intermediate Enterprises Limited			3869137
Vodafone International Holdings Limited			2797426
Vodafone International Operations Limited			2797438
Vodafone Investments Australia Limited			2011978
Vodafone Investments Limited			1530514
Vodafone Investment UK			5798385
Vodafone Leasing Limited			4201716
Vodafone Marketing UK			6858585
Vodafone Mobile Communications Limited			3942221
Vodafone Mobile Enterprises Limited			3961390
Vodafone Mobile Network Limited			3961482
Vodafone (New Zealand) Hedging Limited			4158469
Vodafone Nominees Limited			1172051
Vodafone Oceania Limited			3973427
Vodafone Overseas Finance Limited			4171115
Vodafone Overseas Holdings Limited			2809758
Vodafone Panafon UK			6326918
Vodafone Property Investments Limited			3903420
Vodafone UK Investments Limited			874784
Vodafone UK Limited			2227940
Vodafone Worldwide Holdings Limited			3294074
Vodafone Yen Finance Limited			4373166
Voda Limited			1847509
Vodaphone Limited			2373469
Vodata Limited			2502373

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Other unaudited financial information (continued)

 

 

 

Prior year operating results (continued)

Northern and Central Europe

 

		Germany £m				UK £m				Other Northern and Central Europe £m				Eliminations £m				Northern and Central Europe £m				% change
																						£m				Organic
Year ended 31 March 2012
Revenue			8,233				5,397				6,042				(97	)			19,575				3.6				3.7
Service revenue			7,669				4,996				5,695				(95	)			18,265				2.2				2.5
Adjusted EBITDA			2,965				1,294				1,675				–				5,934				2.7				2.1
Adjusted operating profit			1,491				402				637				–				2,530				2.2				0.8
Adjusted EBITDA margin			36.0%				24.0%				27.7%								30.3%
Year ended 31 March 2011
Revenue			7,900				5,271				5,846				(117	)			18,900
Service revenue			7,471				4,931				5,589				(115	)			17,876
Adjusted EBITDA			2,952				1,233				1,594				–				5,779
Adjusted operating profit			1,548				348				580				–				2,476
Adjusted EBITDA margin			37.4%				23.4%				27.3%								30.6%

 

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Other unaudited financial information (continued)

 

 

Prior year operating results (continued)

Africa, Middle East and Asia Pacific

		India £m				Vodacom £m				Other AMAP £m				Eliminations £m				AMAP £m				% change
																						£m				Organic
Year ended 31 March 2012
Revenue			4,265				5,638				3,965				–				13,868				4.2				8.4
Service revenue			4,215				4,908				3,628				–				12,751				3.7				8.0
Adjusted EBITDA			1,122				1,930				1,063				–				4,115				2.9				7.8
Adjusted operating profit			60				1,084				328				–				1,472				15.7				22.4
Adjusted EBITDA margin			26.3%				34.2%				26.8%								29.7%
Year ended 31 March 2011
Revenue			3,855				5,479				3,971				(1	)			13,304				20.0				9.5
Service revenue			3,804				4,839				3,650				(1	)			12,292				20.0				9.5
Adjusted EBITDA			985				1,844				1,170				–				3,999				20.7				7.5
Adjusted operating profit			15				827				430				–				1,272				55.5				8.6
Adjusted EBITDA margin			25.6%				33.7%				29.5%								30.1%

 

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Other unaudited financial information (continued)

 

 

Liquidity and capital resources (continued)

At 31 March 2013 we had £7,623 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 2013 were managed investment funds, money market funds, UK index linked government bonds, tri-party repurchase agreements and bank deposits.

The cash received from collateral support agreements mainly reflects the value of our interest rate swap portfolio which is substantially net present value positive. See note A6 for further details on these agreements.

Commercial paper programmes

We currently have US and euro commercial paper programmes of US$15 billion and £5 billion respectively which are available to be used to meet short-term liquidity requirements. At 31 March 2013 amounts external to the Group of €2,006 million (£1,693 million), US$35 million (£23 million), £10 million and JPY 5 billion (£35 million) were drawn under the euro commercial paper programme and US$3,484 million (£2,293 million) was drawn down under the US commercial paper programme, with such funds being provided by counterparties external to the Group. At 31 March 2012 €1,226 million (£1,022 million) and US$309 million (£193 million) was drawn under the euro commercial paper programme and US$1,689 million (£1,056 million) was drawn under the US commercial paper programme. The commercial paper facilities were supported by US$4.2 billion (£2.8 billion) and €4.2 billion (£3.6 billion) of syndicated committed bank facilities (see “Committed facilities” opposite). 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 2013 the total amounts in issue under these programmes split by currency were US$21.2 billion, £2.6 billion, €8.0 billion and £0.1 billion sterling equivalent of other currencies.

In the year ended 31 March 2013 bonds with a nominal value equivalent of £5.3 billion at the relevant 31 March 2013 foreign exchange rates were issued under the US shelf. The bonds issued during the year were:

 

Date of bond issue

Maturity of bond

Nominal  amount Million

Sterling equivalent Million

26 September 2012

26 September 2017

US$1,000

658

26 September 2012

26 September 2022

US$1,000

658

19 February 2013

19 February 2016

US$1,600

1,053

19 February 2013

19 February 2018

US$1,400

921

19 February 2013

19 February 2023

US$1,600

1,053

19 February 2013

19 February 2043

US$1,400

921

At 31 March 2013 we had bonds outstanding with a nominal value of £22,837 million (2012: £18,333 million).

Share buyback programmes

Following the disposal of the Group’s entire 44% interest in SFR to Vivendi on 16 June 2011, the Group initiated a £4.0 billion share buyback programme which was completed on 6 August 2012. Under this programme the Group purchased a total of 2,330,039,575 shares at an average price per share, including transaction costs, of 171.67 pence.

On 12 November 2012 VZW declared a dividend of US$8.5 billion (£5.3 billion), of which Vodafone’s share was US$3.8 billion (£2.4 billion). The Board of Vodafone therefore announced a £1.5 billion share buyback programme which commenced on receipt of the dividend in December 2012 and was initiated under the authority granted by the shareholders at the 2012 annual general meeting.

Details of the shares purchased to date, including those purchased under irrevocable instructions, are shown below:

 

Date of share purchase			Number of shares purchased ’000	1			Average price paid         per share inclusive of transaction costs Pence				Total number of shares purchased under         publicly announced share buyback programme ’000	2			Maximum value of shares that may yet be purchased         under the programme £m	3
December 2012			90,755				158.85				90,755				1,356
January 2013			118,500				164.48				209,255				1,161
February 2013			44,396				172.55				253,651				1,084
March 2013			18,000				183.98				271,651				1,051
April 2013			43,000				192.54				314,651				968
May 2013			91,750				196.05				406,401				789
Total			406,401				175.06				406,401	4			789

Notes:

1	The nominal value of shares purchased is 113/7 US cents each.

2	No shares were purchased outside the publicly announced share buyback programme.

3	In accordance with authorities granted by shareholders in general meeting.

4	The total number of shares purchased represents 0.83% of our issued share capital, excluding treasury shares, at 20 May 2013.

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Other unaudited financial information (continued)

 

Liquidity and capital resources (continued)

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 2013 Vodafone India had facilities of INR 215 billion (£2.6 billion) of which INR 207 billion (£2.5 billion) is drawn. Vodafone Egypt has partly drawn EGP 1.1 billion (£104 million) from a syndicated bank facility of EGP 3.67 billion (£355 million) that matures in March 2014. Vodacom had fully drawn facilities of ZAR 5.2 billion (£370 million), US$60 million (£40 million) and TZS 29 billion (£12 million). Vodafone Americas has a US$1.4 billion (£921 million) US private placement with a maturity of 17 August 2015 as well as a US$850 million (£559 million) US private placement with a maturity of 11 July 2016. Ghana had a facility of US$240 million (£158 million) which was fully drawn.

We believe that we have sufficient funding for our expected working capital requirements for at least the next 12 months. Further details regarding the maturity, currency and interest rates of the Group’s gross borrowings at 31 March 2013 are included in note 24.

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, we do not have existing obligations under shareholders’ agreements to pay dividends to non-controlling interest partners of our subsidiaries or joint ventures, except as specified below.

During the year we received distributions totalling £4.8 billion (2012: £3.8 billion) from VZW, which included a one-off US$3.8 billion (£2.4 billion) (2012: US$4.5 billion, £2.9 billion) income dividend received in December 2012 and tax distributions of £2.4 billion (2012: £965 million) which is included in dividends received from associates and investments in the cash flows reconciliation as shown on page 97. Until April 2005 VZW’s distributions were determined by the terms of the partnership agreement distribution policy and comprised income distributions and tax distributions. Since April 2005 only tax distributions have been issued, with the exception of the one-off income dividends received in January and December 2012. Following the announcement of VZW’s acquisition of Alltel, certain additional tax distributions were agreed in addition to the tax distributions required by the partnership agreement. These additional distributions will continue until December 2014. Current projections forecast that tax distributions will cover the US tax liabilities arising from our partnership interest in VZW.

Under the terms of the partnership agreement the VZW board has no obligation to effect additional distributions above the level of the tax distributions. However, the VZW board has agreed that it will review distributions from VZW on a regular basis. When considering whether distributions will be made each year, the VZW board will take into account its debt position, the relationship between debt levels and maturities, and overall market conditions in the context of the five year business plan.

Verizon Communications Inc. has an indirect 23.1% shareholding in Vodafone Italy and under the shareholders’ agreement the shareholders have agreed to take steps to cause Vodafone Italy to pay dividends at least annually, provided that such dividends will not impair the financial condition or prospects of Vodafone Italy including, without limitation, its credit standing. During the 2013 financial year Vodafone Italy paid dividends net of withholding tax totalling €245 million (2012: €289 million) to Verizon Communications Inc.

Potential cash outflows from option agreements and similar arrangements

In respect of our interest in the VZW partnership, an option granted to Price Communications, Inc. by Verizon Communications Inc. was exercised on 15 August 2006. Under the option agreement Price Communications, Inc. exchanged its preferred limited partnership interest in VZW of the East LP for 29.5 million shares of common stock in Verizon Communications Inc. Verizon Communications Inc. has the right, but not the obligation, to contribute the preferred interest to the VZW partnership diluting our interest. However, we also have the right to contribute further capital to the VZW partnership in order to maintain our percentage partnership interest. Such amount, if contributed, would be US$0.8 billion.

In respect of our interest in Vodafone India Limited (‘VIL’), Piramal Healthcare (‘Piramal’) acquired approximately 11% shareholding in VIL from Essar during the 2012 financial year. The agreements contemplate various exit mechanisms for Piramal including participating in an initial public offering by VIL or, if such initial public offering has not completed by 18 August 2013 or 8 February 2014 respectively or Piramal chooses not to participate in such initial public offering, Piramal selling its shareholding to the Vodafone Group in two tranches of 5.485% for an aggregate price of approximately INR 83 billion (£1.0 billion).

Off-balance sheet arrangements

We do not have any material off-balance sheet arrangements as defined in item 5.E.2. of the SEC’s Form 20-F. Please refer to notes 20 and 21 for a discussion of our commitments and contingent liabilities.

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Shareholder information

 

Investor calendar

 

Ex-dividend date for final dividend		12 June 2013
Record date for final dividend		14 June 2013
Interim management statement 30 June 2013		19 July 2013
Annual general meeting		23 July 2013
Final dividend payment		7 August 2013
Half-year financial results		12 November 2013
Ex-dividend date for interim dividend		20 November 20131
Record date for interim dividend		22 November 20131
Interim dividend payment		5 February 20141

Note:

1	Provisional dates.

 

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Shareholder information (continued)

 

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Shareholder information (continued)

 

 

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Shareholder information (continued)

 

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174		Vodafone Group Plc   Annual Report 2013
History and development

 

 

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		175		Vodafone Group Plc   Annual Report 2013

 

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176		Vodafone Group Plc   Annual Report 2013
Regulation (continued)

 

 

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178		Vodafone Group Plc   Annual Report 2013
Regulation (continued)

 

Licences

The table below summarises the most significant mobile licences held by our operating subsidiaries and our joint venture in Italy at 31 March 2013. We present the licences by frequency band since in many markets, including the majority of Northern and Central Europe, and Southern Europe, they can be used for a variety of technologies including 2G, 3G and LTE. Since 2011 we have successfully renewed licences close to expiry in Australia, Malta and Greece on reasonable terms, and have secured short-term extensions prior to auctions in Romania and the Netherlands. In all cases where some of our existing spectrum has been re-auctioned (Greece, Romania, Ireland and the Netherlands) we have acquired new licences through the auction.

Mobile licences

Country by region

800 MHz expiry date

900 MHz expiry date

1800 MHz expiry date

2.1 GHz expiry date

2.6 GHz expiry date

Northern and Central Europe

Germany

December 2025

December 2016

December 2016

December 2020

1

December 2025

UK

March 2033

See note

2

See note

2

December 2021

March 2033

Czech Republic

n/a

January 2021

January 2021

February 2025

n/a

Hungary

n/a

July 2014

3

July 2014

3

December 2019

3

n/a

Ireland

July 2030

July 2030

July 2030

October 2022

n/a

Netherlands

December 2029

February 2030

February 2030

December 2016

May 2030

Romania

April 2029

April 2029

April 2029

March 2020

April 2029

Turkey

n/a

April 2023

–

April 2029

n/a

Southern Europe

Italy

December 2029

February 2015

February 2015

4

December 2021

December 2029

Spain

December 2030

February 2020

December 2030

April 2020

December 2030

Albania

n/a

June 2016

June 2016

December 2025

n/a

Greece

n/a

September 2027

5

December 2026

5

August 2021

n/a

Malta

n/a

August 2026

August 2026

August 2020

n/a

Portugal

March 2027

October 2021

6

October 2021

6

January 2016

March 2027

Africa, Middle East and Asia Pacific

India7

n/a

November 2014 – December 2026

November 2014 – December 2026

September 2030

n/a

Vodacom: South Africa

n/a

See note

8

See note

8

See note

8

n/a

Egypt

n/a

January 2022

January 2022

January 2022

n/a

Ghana

n/a

December 2019

December 2019

December 2023

9

n/a

New Zealand

n/a

November 2031

March 2021

March 2021

December 2028

Qatar

n/a

June 2028

June 2028

June 2028

n/a

Notes:

1	2x5 MHz (out of 2x15 MHz) of 2.1 GHz spectrum will expire in December 2025.

2	Indefinite licence with a five year notice of revocation.

3	Options to extend these licences.

4	2x5 MHz of 1800 MHz spectrum will expire in 2029.

5	2x15 MHz of the 1800 MHz spectrum will expire in August 2016.

6	2x3 MHz of 900 MHz must be released by December 2015 and 2x14 MHz of 1800 MHz spectrum does not expire until March 2027.

7	India is comprised of 22 separate service area licences with a variety of expiry dates.

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 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. Vodacom also holds licences to provide 2G and/or 3G services in the Democratic Republic of Congo, Lesotho, Mozambique and Tanzania.

9	The national regulator has issued provisional licences with the intention of converting these to full licences once the national regulator board has been reconvened.

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180		Vodafone Group Plc   Annual Report 2013
Non-GAAP information (continued)

 

Reconciliation of organic growth to reported growth is shown where used, or in the table below:

 

			Organic change %				Other activity pps	1			Foreign exchange pps				Reported change %
31 March 2013
Group
Service revenue			(1.9	)			3.0				(5.6	)			(4.5	)
Revenue			(1.4	)			2.8				(5.6	)			(4.2	)
Data revenue			13.8				(0.4	)			(5.9	)			7.5
Enterprise data revenue			10.0				0.5				(4.9	)			5.6
Vodafone Global Enterprise revenue			5				–				(4	)			1
Emerging markets service revenue			8.4				(0.3	)			(9.2	)			(1.1	)
Adjusted EBITDA			(3.1	)			0.7				(5.9	)			(8.3	)
Adjusted EBITDA margin			(0.5	)			(0.6	)			(0.2	)			(1.3	)
Adjusted EBITDA margin excluding restructuring costs			(0.1	)			(0.6	)			(0.2	)			(0.9	)
Operating profit from controlled and jointly controlled operations			(7.0	)			(3.9	)			(5.6	)			(16.5	)
Adjusted operating profit			9.3				(2.3	)			(3.3	)			3.7
Northern and Central Europe
Service revenue excluding the impact of MTRs			1.6				7.1				(4.1	)			4.6
Data revenue			14.4				–				(4.3	)			10.1
Enterprise revenue			0.8				–				(3.9	)			(3.1	)
Germany – mobile service revenue			1.3				(0.1	)			(5.6	)			(4.4	)
Germany – data revenue			13.6				–				(6.0	)			7.6
Germany – enterprise revenue			3.0				–				(5.6	)			(2.6	)
UK – data revenue			4.2				–				–				4.2
Netherlands – service revenue			(2.7	)			(0.2	)			(5.4	)			(8.3	)
Turkey – service revenue			17.3				(1.8	)			(3.1	)			12.4
Percentage point reduction in adjusted EBITDA margin			(0.7	)			(1.1	)			(0.1	)			(1.9	)
Germany – percentage point reduction in adjusted EBITDA margin			(1.3	)			0.1				–				(1.2	)
UK – percentage point reduction in adjusted EBITDA margin			(0.5	)			–				–				(0.5	)
Other Northern and Central Europe – percentage point reduction in adjusted EBITDA margin			(0.3	)			(2.7	)			(0.1	)			(3.1	)
Southern Europe
Service revenue excluding the impact of MTRs			(8.4	)			(0.1	)			(5.0	)			(13.5	)
Data revenue			9.7				–				(5.8	)			3.9
Italy – data revenue			4.4				–				(5.7	)			(1.3	)
Italy – fixed line revenue			(6.8	)			–				(5.1	)			(11.9	)
Spain – data revenue			16.5				–				(6.1	)			10.4
Spain – fixed line revenue			(2.9	)			–				(5.0	)			(7.9	)
Greece – service revenue			(13.4	)			(0.4	)			(5.0	)			(18.8	)
Portugal – service revenue			(8.2	)			(0.2	)			(5.2	)			(13.6	)
Percentage point reduction in adjusted EBITDA margin			(2.2	)			–				(0.1	)			(2.3	)
Italy – percentage point reduction in adjusted EBITDA margin			(4.3	)			0.1				(0.1	)			(4.3	)
Spain – percentage point reduction in adjusted EBITDA margin			(0.7	)			(0.2	)			–				(0.9	)
Other Southern Europe – percentage point reduction in adjusted EBITDA margin			(0.4	)			–				(0.2	)			(0.6	)
Africa, Middle East and Asia Pacific
India – data revenue			19.8				–				(13.5	)			6.3
South Africa – service revenue			(0.3	)			–				(11.8	)			(12.1	)
South Africa – data revenue			16.1				–				(13.8	)			2.3
Vodacom’s international operations excluding Vodacom Business Africa			23.3				–				(1.0	)			22.3
Egypt – service revenue			3.7				–				(3.0	)			0.7
Egypt – data revenue			29.6				–				(4.2	)			25.4
Egypt – fixed line revenue			29.0				–				(2.9	)			26.1
Ghana – service revenue			24.2				–				(18.9	)			5.3
Qatar – service revenue			29.8				–				1.7				31.5
Percentage point increase in adjusted EBITDA margin			1.7				(0.2	)			(0.2	)			1.3
India – percentage point increase in adjusted EBITDA margin			3.3				(1.0	)			0.1				2.4
Vodacom – percentage point increase in adjusted EBITDA margin			1.6				0.9				(0.4	)			2.1
Egypt – percentage point increase in adjusted EBITDA margin			1.4				–				–				1.4
Other AMAP – percentage point increase in adjusted EBITDA margin			0.1				(0.4	)			0.1				(0.2	)

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182		Vodafone Group Plc   Annual Report 2013
Form 20-F cross reference guide

 

This annual report on Form 20-F for the fiscal year ended 31 March 2013 has not been approved or disapproved by the SEC nor has the SEC passed judgement upon the adequacy or accuracy of this document. The table below sets out the location in this document of the information required by SEC Form 20-F.

 

Item		Form 20-F caption		Location in this document		Page
1		Identity of directors, senior management and advisers		Not applicable		–
2		Offer statistics and expected timetable		Not applicable		–
3		Key information
		3A Selected financial data		Selected financial data		189
				Shareholder information – Inflation and foreign currency translation		168
		3B Capitalisation and indebtedness		Not applicable		–
		3C Reasons for the offer and use of proceeds		Not applicable		–
		3D Risk factors		Principal risk factors and uncertainties		46 to 49
4		Information on the Company
		4A History and development of the company		History and development		174
				Contact details		Back cover
		4B Business overview		Financial highlights		3
				Maximising our reach		4 and 5
				An eventful year		6 and 7
				Adapting in a dynamic market		8 and 9
				Simple, but thorough		10 and 11
				Key performance indicators		18 and 19
				Industry trends		20 and 21
				How we do business		22 and 23
				Strategy: Consumer 2015		24 to 27
				Strategy: Enterprise 2015		28 and 29
				Strategy: Network 2015		30 and 31
				Strategy: Operations 2015		32 and 33
				Operating results		40 to 44
				Prior year operating results		151 to 155
				Regulation		175 to 178
		4C Organisational structure		Note A8 “Principal subsidiaries”		149
				Note 14 “Investments in joint ventures”		116
				Note 15 “Investments in associates”		117
				Note 16 “Other investments”		117 to 118
		4D Property, plant and equipment		How we do business		22 and 23
				Commentary on the consolidated statement of financial position		93
				Sustainable business		36 and 37
4A		Unresolved staff comments		None		–

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184		Vodafone Group Plc   Annual Report 2013
Form 20-F cross reference guide (continued)

 

 

Item		Form 20-F caption		Location in this document		Page
10		Additional information
		10A Share capital		Not applicable		–
		10B Memorandum and articles of association		Shareholder information – Articles of association and		168 to 171
				applicable English law
		10C Material contracts		Shareholder information – Material contracts		171
		10D Exchange controls		Shareholder information – Exchange controls		171
		10E Taxation		Shareholder information – Taxation		171 to 173
		10F Dividends and paying agents		Not applicable		–
		10G Statement by experts		Not applicable		–
		10H Documents on display		Shareholder information – Documents on display		171
		10I Subsidiary information		Not applicable		–
11		Quantitative and qualitative disclosures about		Note A6 “Capital and financial risk management”		144 to 147
		market risk
12		Description of securities other than equity
		securities
		12A Debt securities		Not applicable		–
		12B Warrants and rights		Not applicable		–
		12C Other securities		Not applicable		–
		12D American depositary shares		ADR payment information		C-1
13		Defaults, dividend arrearages and delinquencies		Not applicable		–
14		Material modifications to the rights of security		Not applicable		–
		holders and use of proceeds
15		Controls and procedures		Corporate governance		55 to 66
				Directors’ statement of responsibility – Management’s report		84
				on internal control over financial reporting
				Audit report on internal control over financial reporting		85
16		16A Audit Committee financial expert		Corporate governance – Board committees		59 to 63
		16B Code of ethics		Corporate governance – US listing requirements		66
		16C Principal accountant fees and services		Note 3 “Operating profit”		100
				Corporate governance – Audit and Risk Committee –		62 to 63
				External audit
		16D Exemptions from the listing standards for audit		Not applicable		–
		committees
		16E Purchase of equity securities by the issuer and		Commentary on the consolidated statement of changes		95
		affiliated purchasers		in equity – Purchase of own shares
				Liquidity and capital resources – Share buyback programmes		156
		16F Change in registrant’s certifying accountant		Not applicable		–
		16G Corporate governance		Corporate governance – US listing requirements		66
		16H Mine safety disclosure		Not applicable		–
17		Financial statements		Not applicable		–
18		Financial statements		Financials		90, 92, 94, 96
						and 98 to150
		18A Separate financial statements required by		Financials		B-1
		Rule 3-09 of Regulation S-X
		18B Report of Independent Registered Public		Financials		B-3
		Accounting Firm
19		Exhibits		Filed with the SEC		Index to Exhibits

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186		Vodafone Group Plc   Annual Report 2013
Forward-looking statements (continued)

 

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188		Vodafone Group Plc   Annual Report 2013
Definition of terms (continued)

 

 

Mark-to-market		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.
Mobile broadband		Also known as mobile internet (see below).
Mobile customer		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, except telemetric applications. Telemetric applications include, but are not limited to, asset and equipment tracking, mobile payment and billing functionality, e.g. vending machines and meter readings, and include voice enabled customers whose usage is limited to a central service operation, e.g. emergency response applications in vehicles.
Mobile internet		Mobile internet allows internet access anytime, anywhere through a browser or a native application using any portable or mobile device such as smartphone, tablet, laptop connected to a wireless network.
Mobile termination rate (‘MTR’)		A per minute charge paid by a telecommunications network operator when a customer makes a call to another mobile or fixed line network operator.
MVNO		Mobile virtual network operators, companies that provide mobile phone services but do not have their own licence of spectrum or the infrastructure required to operate a network.
Net debt		Long-term borrowings, short-term borrowings and mark-to-market adjustments on financing instruments less cash and cash equivalents.
Net promoter score (‘NPS’)		Net promoter score is a customer loyalty metric used to monitor customer satisfaction.
Operating expenses		Operating expenses comprise primarily of network and IT related expenditure, support costs from HR and finance and certain intercompany items.
Operating free cash flow		Cash generated from operations after cash payments for capital expenditure (excludes capital licence and spectrum payments) and cash receipts from the disposal of intangible assets and property, plant and equipment.
Organic growth		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. From 1 October 2011 the Group revised its intra-group roaming charges. Whilst neutral to Group revenue and profitability, these changes have had an impact on reported service revenue by country and regionally since 1 October 2011. Whilst prior period reported revenue has not been restated, to ensure comparability in organic growth rates, country and regional revenue in the prior financial year have been recalculated based on the new pricing structure to form the basis for our organic calculations. During the 2013 financial year, Indus Towers (reported within the India segment) revised its accounting for energy cost recharges to operators from a net to a gross basis, to reflect revised energy supply terms. The impact of this upward revenue adjustment has been excluded from reported organic growth rates. The adjustment has no profit impact.
Partner markets		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.
Penetration		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.
Petabyte		A petabyte is a measure of data usage. One petabyte is a million gigabytes.
Pps		Percentage points.
Reported growth		Reported growth is based on amounts reported in pound sterling as determined under IFRS.
RAN		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.
Retention costs		The total of trade commissions, loyalty scheme and equipment costs relating to customer retention and upgrade.
Roaming		Allows customers to make calls on other operators’ mobile networks while travelling abroad.
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.
Smartphone devices		A smartphone is a mobile phone offering advanced capabilities including access to email and the internet.
Smartphone penetration		The number of smartphone devices divided by the number of registered SIMs, excluding data only SIMs.
SME		Small to medium-sized enterprises.
SoHo		Small-office home-office.
Spectrum		The radio frequency bands and channels assigned for telecommunication services.
Supranational		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.
Tablets		A tablet is a slate shaped, mobile or portable casual computing device equipped with a finger operated touchscreen or stylus, for example, the Apple iPad.
VZW		Verizon Wireless, the Group’s associate in the US.
VZW income dividends		Distributions (other than tax distributions) by Verizon Wireless as agreed from time to time by the Board of Verizon Wireless.
VZW tax distributions		Specific distributions made by the Cellco Partnership to its partners based on the taxable income of Verizon Wireless.

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Cellco Partnership

(d/b/a Verizon Wireless)

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements

For the years ended

December 31, 2012, 2011 and 2010

 

B-1

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Cellco Partnership (d/b/a Verizon Wireless)

 

Report of Independent Registered Public Accounting Firm			B-3
Consolidated Statements of Income
For the years ended December 31, 2012, 2011 and 2010			B-4
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2012, 2011 and 2010			B-5
Consolidated Balance Sheets
As of December 31, 2012 and 2011			B-6
Consolidated Statements of Cash Flows
For the years ended December 31, 2012, 2011 and 2010			B-7
Consolidated Statements of Changes in Partners’ Capital
For the years ended December 31, 2012, 2011 and 2010			B-8
Notes to Consolidated Financial Statements			B-9 to B-28

 

B-2

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Representatives and Partners of

Cellco Partnership d/b/a Verizon Wireless:

We have audited the accompanying consolidated balance sheets of Cellco Partnership and subsidiaries d/b/a Verizon Wireless (the “Partnership”) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, cash flows and changes in partners’ capital for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

New York, New York

February 26, 2013 (June 7, 2013 as to Note 11)

 

B-3

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Consolidated Statements of Income

Cellco Partnership (d/b/a Verizon Wireless)

 

		Years Ended December 31,
(dollars in millions)		2012				2011				2010
Operating Revenue (including $83, $87 and $94 from affiliates)
Service revenue		$	63,733			$	59,157			$	55,994
Equipment and other			12,135				10,997				7,925
Total operating revenue			75,868				70,154				63,919
Operating Costs and Expenses (including $1,949, $1,708 and $1,696 from affiliates)
Cost of service (exclusive of items shown below)			7,711				7,994				8,342
Cost of equipment			16,779				16,092				11,423
Selling, general and administrative			21,696				19,655				18,727
Depreciation and amortization			7,960				7,962				7,458
Total operating costs and expenses			54,146				51,703				45,950
Operating Income			21,722				18,451				17,969
Other Income (Expenses)
Interest expense, net			(442	)			(610	)			(316	)
Other income and (expense), net			96				56				90
Income Before Provision for Income Taxes			21,376				17,897				17,743
Provision for income taxes			(201	)			(947	)			(1,067	)
Net Income		$	21,175			$	16,950			$	16,676
Net income attributable to non-controlling interest			304				280				295
Net income attributable to Cellco Partnership			20,871				16,670				16,381
Net Income		$	21,175			$	16,950			$	16,676

See Notes to Consolidated Financial Statements.

 

B-4

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Consolidated Statements of Comprehensive Income

Cellco Partnership (d/b/a/ Verizon Wireless)

 

		Years Ended December 31,
(dollars in millions)		2012				2011				2010
Net Income		$	21,175			$	16,950			$	16,676
Other comprehensive income, net of taxes
Unrealized gain (loss) on cash flow hedges			21				3				(66	)
Defined benefit pension and postretirement plans			—				(1	)			(9	)
Other comprehensive income (loss) attributable to Cellco Partnership			21				2				(75	)
Total Comprehensive Income		$	21,196			$	16,952			$	16,601
Comprehensive income attributable to non-controlling interest		$	304			$	280			$	295
Comprehensive income attributable to Cellco Partnership			20,892				16,672				16,306
Total Comprehensive Income		$	21,196			$	16,952			$	16,601

See Notes to Consolidated Financial Statements.

 

B-5

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Consolidated Balance Sheets

Cellco Partnership (d/b/a Verizon Wireless)

 

		As of December 31,
(dollars in millions)		2012				2011
Assets
Current assets
Cash and cash equivalents		$	1,354			$	12,756
Receivables, net of allowances of $350 and $338			6,657				5,989
Due from affiliates, net			106				140
Inventories, net			1,044				906
Prepaid expenses and other current assets			525				494
Total current assets			9,686				20,285
Plant, property and equipment, net			34,546				33,451
Wireless licenses			77,642				73,097
Goodwill			17,737				17,528
Other intangibles and other assets, net			2,102				2,171
Total assets		$	141,713			$	146,532
Liabilities and Partners’ Capital
Current liabilities
Short-term debt, including current maturities		$	1,448			$	1,553
Distribution payable to partners			—				10,000
Accounts payable and accrued liabilities			7,534				6,815
Advance billings			2,550				2,299
Other current liabilities			274				453
Total current liabilities			11,806				21,120
Long-term debt			8,665				10,058
Deferred tax liabilities, net			10,939				10,862
Other non-current liabilities			2,056				1,516
Partners’ capital
Capital			106,119				100,961
Accumulated other comprehensive income			84				63
Non-controlling interest			2,044				1,952
Total Partners’ capital			108,247				102,976
Total liabilities and Partners’ capital		$	141,713			$	146,532

See Notes to Consolidated Financial Statements.

 

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Consolidated Statements of Cash Flows

Cellco Partnership (d/b/a Verizon Wireless)

 

		Years Ended December 31,
(dollars in millions)		2012				2011				2010
Cash Flows from Operating Activities
Net income		$	21,175			$	16,950			$	16,676
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation and amortization			7,960				7,962				7,458
Provision for uncollectible receivables			634				689				746
Provision for deferred income taxes			123				368				65
Changes in current assets and liabilities, net of the effects of acquisition/disposition of businesses:
Receivables			(1,238	)			(624	)			(1,081	)
Inventories, net			(137	)			166				308
Prepaid expenses and other current assets			(107	)			124				(104	)
Accounts payable and accrued liabilities			674				(728	)			1,510
Other operating activities, net			(419	)			371				(31	)
Net cash provided by operating activities			28,665				25,278				25,547
Cash Flows from Investing Activities
Capital expenditures (including capitalized software)			(8,857	)			(8,973	)			(8,438	)
Acquisitions of businesses, net of cash acquired			(188	)			(144	)			(293	)
Acquisitions of wireless licenses			(4,287	)			(26	)			(39	)
Proceeds from dispositions			—				—				2,594
Other investing activities, net			843				(490	)			(495	)
Net cash used in investing activities			(12,489	)			(9,633	)			(6,671	)
Cash Flows from Financing Activities
Repayments to affiliates			—				—				(5,005	)
Repayments of long-term borrowings			(1,569	)			(4,862	)			(5,016	)
Distributions to partners			(25,681	)			(3,082	)			(3,845	)
Other financing activities, net			(328	)			(276	)			(286	)
Net cash used in financing activities			(27,578	)			(8,220	)			(14,152	)
Increase (decrease) in cash and cash equivalents			(11,402	)			7,425				4,724
Cash and cash equivalents, beginning of year			12,756				5,331				607
Cash and cash equivalents, end of year		$	1,354			$	12,756			$	5,331

See Notes to Consolidated Financial Statements.

 

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Consolidated Statements of Changes in Partners’ Capital

Cellco Partnership (d/b/a/ Verizon Wireless)

 

		Years Ended December 31,
(dollars in millions)		2012				2011				2010
Partners’ Capital
Balance at beginning of year		$	100,961			$	97,399			$	84,863
Net income attributable to Cellco Partnership			20,871				16,670				16,381
Contributed capital			(32)				(26)				—
Distributions declared to partners			(15,681)				(13,082)				(3,845)
Balance at end of year			106,119				100,961				97,399
Accumulated Other Comprehensive Income
Balance at beginning of year			63				61				136
Unrealized gain (loss) on cash flow hedges			21				3				(66)
Defined benefit pension and postretirement plans			—				(1)				(9)
Other comprehensive income (loss)			21				2				(75)
Balance at end of year			84				63				61
Total Partners’ Capital Attributable to Cellco Partnership			106,203				101,024				97,460
Non-controlling Interest
Balance at beginning of year			1,952				1,962				1,988
Net income attributable to non-controlling interest			304				280				295
Non-controlling interests in disposed company			—				—				(34)
Distributions			(342)				(280)				(287)
Other			130				(10)				—
Balance at end of year			2,044				1,952				1,962
Total Partners’ Capital		$	108,247			$	102,976			$	99,422

See Notes to Consolidated Financial Statements.

 

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Notes to Consolidated Financial Statements

Cellco Partnership (d/b/a Verizon Wireless)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

Cellco Partnership (the “Partnership”), a Delaware general partnership doing business as Verizon Wireless, provides wireless communication services across one of the most extensive wireless networks in the United States (U.S.) and has the largest third-generation (3G) Evolution-Data Optimized (EV-DO) and fourth-generation (4G) Long-Term Evolution technology (LTE) networks of any U.S. wireless service provider. The Partnership has one segment and operates domestically only. References to “the Partners” refers to Verizon Communications, and its subsidiaries (“Verizon”), which owns 55% of the Partnership, and Vodafone Group Plc, and its subsidiaries (“Vodafone”), which owns 45% of the Partnership.

These consolidated financial statements include transactions between the Partnership and Verizon and Vodafone (“Affiliates”) for the provision of services and financing pursuant to various agreements (see Notes 5 and 11).

Consolidated Financial Statements and Basis of Presentation

The consolidated financial statements of the Partnership include the accounts of its majority-owned subsidiaries and the partnerships in which the Partnership exercises control. Investments in businesses and partnerships which the Partnership does not control, but has the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method of accounting. Investments and partnerships which the Partnership does not have the ability to exercise significant influence over operating and financial policies are accounted for under the cost method of accounting. Equity and cost method investments are included in Other intangibles and other assets, net in the Partnership’s consolidated balance sheets. All significant intercompany accounts and transactions have been eliminated.

The Partnership has reclassified prior year amounts to conform to current year presentation.

The Partnership has evaluated subsequent events through June 7, 2013, the date these consolidated financial statements were available to be issued.

During the second quarter of 2010, the Partnership recorded a one-time non-cash adjustment of $0.3 billion primarily to reduce wireless service revenues. This adjustment was recorded to properly defer previously recognized wireless service revenues that were earned and recognized in future periods. As the amounts involved were not material to the Partnership’s consolidated financial statements in 2010 or any previous reporting period, the adjustment was recorded during the second quarter of 2010.

Use of Estimates

The Partnership prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates.

Examples of significant estimates include: the allowances for doubtful accounts, the recoverability of plant, property and equipment, the recoverability of intangible assets and other long-lived assets, unbilled revenues, fair values of financial instruments, unrecognized tax benefits, valuation allowances on tax assets, accrued expenses, contingencies and allocation of purchase prices in connection with business combinations.

 

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Revenue Recognition

Multiple Deliverable Arrangements

The Partnership offers products and services to its customers through bundled arrangements. These arrangements involve multiple deliverables which may include products, services, or a combination of products and services.

On January 1, 2011, the Partnership prospectively adopted the accounting standard updates regarding revenue recognition for multiple deliverable arrangements, and arrangements that include software elements. These updates require a vendor to allocate revenue in an arrangement using its best estimate of selling price if neither vendor specific objective evidence (VSOE) nor third party evidence (TPE) of selling price exists. The residual method of revenue allocation is no longer permissible. These accounting standard updates did not change the Partnership’s units of accounting for bundled arrangements, nor do they materially change how the Partnership allocates arrangement consideration to our various products and services. Accordingly, the adoption of these standard updates did not have a significant impact on the Partnership’s consolidated financial statements. Additionally, the Partnership does not currently foresee any changes to our products, services or pricing practices that will have a significant effect on the Partnership’s consolidated financial statements in periods after the initial adoption, although this could change.

The Partnership earns revenue primarily by providing access to and usage of its network. In general, access revenue is billed one month in advance and recognized when earned; the unearned portion is classified in Advance billings in the consolidated balance sheets. Usage revenue is generally billed in arrears and recognized when service is rendered and included in unbilled revenue, within Receivables, net in the consolidated balance sheets. Equipment sales revenue associated with the sale of wireless handsets and accessories is recognized when the products are delivered to and accepted by the customer, as this is considered to be a separate earnings process from providing wireless services. For agreements involving the resale of third-party services in which the Partnership is considered the primary obligor in the arrangements, the Partnership records revenue gross at the time of sale. For equipment sales, the Partnership currently subsidizes the cost of wireless devices. The amount of this subsidy is generally contingent on the arrangement and terms selected by the customer. The equipment revenue is recognized up to the amount collected when the wireless device is sold.

The Partnership reports taxes imposed by governmental authorities on revenue-producing transactions between the Partnership and its customers on a net basis.

Advertising Costs

Costs for advertising products and services as well as other promotional and sponsorship costs are charged to Selling, general and administrative expense in the periods in which they are incurred. See Note 9.

Vendor Rebates and Discounts

The Partnership recognizes vendor rebates or discounts for purchases of wireless devices from a vendor as a reduction of Cost of equipment when the related wireless devices are sold. Vendor rebates or discounts that have been earned as a result of completing the required performance under the terms of the underlying agreements but for which the wireless devices have not yet been sold are recognized as a reduction of inventory cost. Advertising credits are granted by a vendor to the Partnership as reimbursement of specific, incremental, identifiable advertising costs incurred by the Partnership in selling the vendor’s wireless devices. These advertising credits are restricted based upon a marketing plan agreed to by the vendor and the Partnership, and accordingly, advertising credits received are recorded as a reduction of those advertising costs when recognized in the Partnership’s consolidated statements of income.

Cash and Cash Equivalents

The Partnership considers all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates quoted market value, and includes approximately $0.7 billion and $12.2 billion at December 31, 2012 and 2011, respectively, held in money market funds that are considered cash equivalents.

 

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Inventory

Inventory consists primarily of wireless equipment held for sale, which is carried at the lower of cost (determined using a first-in, first-out method) or market. The Partnership maintained inventory valuation reserves which were not significant as of December 31, 2012 and 2011.

Capitalized Software

Capitalized software consists primarily of direct costs incurred for professional services provided by third parties and compensation costs of employees which relate to software developed for internal use either during the application stage or for upgrades and enhancements that increase functionality. Costs are capitalized and amortized on a straight-line basis over their estimated useful lives. Costs incurred in the preliminary project stage of development and maintenance are expensed as incurred. For a discussion of the Partnership’s impairment policy for capitalized software costs, see “Valuation of Assets” below. Also see Note 3 for additional detail of internal-use non-network software reflected in the Partnership’s consolidated balance sheets.

Plant, Property and Equipment

Plant, property and equipment primarily represents costs incurred to construct and expand capacity and network coverage on Mobile Telephone Switching Offices and cell sites. The cost of plant, property and equipment is depreciated on a straight-line basis over its estimated useful life. Periodic reviews are performed to identify any category or group of assets within plant, property and equipment where events or circumstances may change the remaining estimated economic life. This principally includes changes in the Partnership’s plans regarding technology upgrades, enhancements, and planned retirements. Changes in these estimates resulted in an increase of $0.4 billion and $0.3 billion for the years ended December 31, 2011 and 2010, respectively. Major improvements to existing plant and equipment are capitalized. Routine maintenance and repairs that do not extend the life of the plant and equipment are charged to expense as incurred. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the related lease.

Upon the sale or retirement of plant, property and equipment, the cost and related accumulated depreciation or amortization is deducted from the plant accounts and any gains or losses on disposition are recognized in income.

Interest expense and network engineering costs incurred during the construction phase of the Partnership’s network and real estate properties under development are capitalized as part of plant, property and equipment and recorded as construction in progress until the projects are completed and placed into service.

Valuation of Assets

Long-lived assets, including plant, property and equipment and intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Wireless Licenses

The Partnership’s principal intangible assets are licenses, which provide the Partnership with the exclusive right to utilize certain radio frequency spectrum to provide wireless communication services. While licenses are issued for only a fixed time, generally ten years, such licenses are subject to renewal by the Federal Communications Commission (“FCC”). Renewals of licenses have occurred routinely and at nominal costs, which are expensed as incurred. Moreover, the Partnership has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the Partnership’s wireless licenses. As a result, the wireless licenses are treated as an indefinite lived intangible asset, and are not amortized. The Partnership reevaluates the useful life determination for wireless licenses at least annually to determine whether events and circumstances continue to support an indefinite useful life.

 

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The Partnership tests its wireless licenses for potential impairment annually. The Partnership evaluates its licenses on an aggregate basis using a direct value approach. The direct value approach estimates fair value using a discounted cash flow analysis to estimate what a marketplace participant would be willing to pay to purchase the aggregated wireless licenses as of the valuation date. If the fair value of the aggregated wireless licenses is less than the aggregated carrying amount of the licenses, an impairment is recognized. The Partnership evaluated its wireless licenses for potential impairment as of December 15, 2012 and 2011. The Partnership’s annual impairment tests for 2012 and 2011 indicated that the fair value significantly exceeded the carrying value and, therefore, did not result in an impairment.

Interest expense incurred while qualifying activities are performed to ready wireless licenses for their intended use is capitalized as part of wireless licenses. The capitalization period ends when a license is substantially complete and the license is ready for its intended use.

Goodwill

Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Impairment testing for goodwill is performed annually in the fourth fiscal quarter. The Partnership has the option to perform a qualitative assessment to determine if the fair value of the entity is less than its carrying value. However, the Partnership may elect to perform an impairment test even if no indications of a potential impairment exist. The impairment test for goodwill uses a two-step approach, which is performed for the Partnership’s one reporting unit. Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit’s goodwill to its implied fair value (i.e., fair value of reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets). If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment is recognized. The Partnership completed its goodwill impairment test as of December 15, 2012 and 2011. The Partnership’s annual impairment tests for 2012 and 2011 indicated that the fair value significantly exceeded the carrying value and, therefore, did not result in an impairment.

Fair Value Measurements

Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3 – No observable pricing inputs in the market

Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Partnership’s assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

See Note 4 for further details on the Partnership’s fair value measurements.

Foreign Currency Translation

The functional currency for all of the Partnership’s operations is the U.S. dollar. However, the Partnership has transactions denominated in a currency other than the local currency, principally debt denominated in Euros and British Pounds Sterling. Gains and losses resulting from exchange-rate changes in transactions denominated in a foreign currency are included in earnings.

 

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Derivatives

The Partnership uses derivatives from time to time to manage the Partnership’s exposure to fluctuations in the cash flows of certain transactions. The Partnership measures all derivatives at fair value and recognizes them as either assets or liabilities on its consolidated balance sheets. The Partnership’s derivative instruments are valued primarily using models based on readily observable market parameters for all substantial terms of the Partnership’s derivative contracts and thus are classified as Level 2. Changes in the fair values of derivative instruments not qualifying as hedges or any ineffective portion of hedges are recognized in earnings in the current period. Changes in the fair values of derivative instruments used effectively as fair value hedges are recognized in earnings, along with changes in the fair value of the hedged item. Changes in the fair value of the effective portions of cash flow hedges are reported in Other comprehensive income (loss) and recognized in earnings when the hedged item is recognized in earnings.

Employee Benefit Plans

The Partnership maintains a defined contribution plan, the Verizon Wireless Savings and Retirement Plan (the “Savings and Retirement Plan”), for the benefit of its employees. The Savings and Retirement Plan includes both an employee savings and profit sharing component. Under the employee savings component, employees may contribute a percentage of eligible compensation to the Savings and Retirement Plan. Up to the first 6% of an employee’s eligible compensation contributed to the Savings and Retirement Plan is matched 100% by the Partnership. Under the profit sharing component, the Partnership may elect, at the sole discretion of the Human Resources Committee of the Board of Representatives, to contribute an additional amount in the form of a profit sharing contribution to the accounts of eligible employees. See Note 9.

Long-Term Incentive Compensation

The Partnership measures compensation expense for all stock-based compensation awards made to employees and directors based on estimated fair values. See Note 6 for further details.

Income Taxes

The Partnership is not a taxable entity for federal income tax purposes. Any federal taxable income or loss is included in the respective partners’ consolidated federal return. Certain states, however, impose taxes at the partnership level and such taxes are the responsibility of the Partnership and are included in the Partnership’s tax provision. The consolidated financial statements also include provisions for federal and state income taxes, prepared on a stand-alone basis, for all corporate entities within the Partnership. Deferred income taxes are recorded using enacted tax law and rates for the years in which the taxes are expected to be paid or refunds received. Deferred income taxes are provided for items when there is a temporary difference in recording such items for financial reporting and income tax reporting.

The Partnership uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The first step is recognition: the Partnership determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Partnership presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability.

 

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The Partnership recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

Concentrations

The Partnership relies on local and long-distance telephone companies, some of whom are related parties (see Note 11), and other companies to provide certain communication services. Although management believes alternative telecommunications facilities could be found in a timely manner, any disruption of these services could potentially have an adverse impact on the Partnership’s business, results of operations and financial condition.

No single customer receivable is large enough to present a significant financial risk to the Partnership.

Recently Adopted Accounting Standards

During the first quarter of 2012, the Partnership adopted the accounting standard update regarding the presentation of comprehensive income. This update was issued to increase the prominence of items reported in other comprehensive income. The update requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate, but consecutive statements. In connection with the adoption of this standard the Partnership’s consolidated financial statements include a separate statement of comprehensive income.

During the first quarter of 2012, the Partnership adopted the accounting standard update regarding fair value measurement. This update was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. generally accepted accounting principles and International Financial Reporting Standards. This standard update also changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The adoption of this standard update did not have a significant impact on the Partnership’s consolidated financial statements.

During the first quarter of 2012, the Partnership adopted the accounting standard update regarding testing of goodwill for impairment. This standard update gives companies the option to perform a qualitative assessment to first assess whether the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The Partnership did not elect to use the qualitative assessment in 2012.

Recent Accounting Standards

In July 2012, the accounting standard update regarding testing of intangible assets for impairment was issued. This standard update allows companies the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not the asset is impaired. The Partnership will adopt this standard update during the first quarter of 2013. The adoption of this standard update is not expected to have a significant impact on the Partnership’s consolidated financial statements.

In February 2013, the accounting standard update regarding reclassifications out of accumulated other comprehensive income was issued. This standard update requires companies to report the effect of significant reclassifications out of Accumulated other comprehensive income on the respective line items in the Partnership’s consolidated statements of income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Partnership will adopt this standard in the first quarter of 2013. The adoption of this standard update is not expected to have a significant impact on the Partnership’s consolidated financial statements.

 

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2. Acquisitions and Divestitures

Spectrum Licenses

During the third quarter of 2012, after receiving the required regulatory approvals, the Partnership completed the following previously announced transactions in which the Partnership acquired wireless spectrum that will be used to deploy additional 4G LTE capacity.

 

•

The Partnership acquired Advanced Wireless Service (AWS) spectrum in separate transactions with SpectrumCo, LLC (SpectrumCo) and Cox TMI Wireless, LLC for which it paid an aggregate of $3.9 billion at the time of the closings. The Partnership has also recorded a liability of $0.4 billion related to a three-year service obligation to SpectrumCo’s members pursuant to commercial agreements executed concurrently with the SpectrumCo transaction.

 

•

The Partnership completed license purchase and exchange transactions with Leap Wireless, Savary Island Wireless, which is majority owned by Leap Wireless, and a subsidiary of T-Mobile USA, Inc. (T-Mobile). As a result of these transactions, the Partnership received an aggregate $2.6 billion of AWS and PCS licenses at fair value and net cash proceeds of $0.2 billion, transferred certain AWS licenses to T-Mobile and a 700 megahertz (MHz) lower A block license to Leap Wireless, and recorded an immaterial gain.

During 2011, the Partnership entered into commercial agreements, modified in 2012, with affiliates of Comcast Corporation, Time Warner Cable, Bright House Networks and Cox Communications Inc. (the cable companies). Through these agreements, the cable companies and the Partnership became agents to sell certain of one another’s products and services and, over time, the cable companies will have the option, subject to the terms and conditions of the agreements, of selling the Partnership’s service on a wholesale basis.

During the fourth quarter of 2012, the Partnership entered into license exchange agreements with T-Mobile and Cricket License Company, LLC, a subsidiary of Leap Wireless, to exchange certain AWS licenses. These non-cash exchanges, which are subject to approval by the FCC and other customary closing conditions, are expected to close in 2013. The exchange includes a number of intra-market swaps that will result in more efficient use of the AWS band. As a result of these transactions, the Partnership expects to record an immaterial gain.

On April 18, 2012, the Partnership announced plans to initiate an open sale process for all of its 700 MHz lower A and B block spectrum licenses, subject to the receipt of acceptable bids. The Partnership acquired these licenses as part of FCC Auction 73 in 2008. On January 25, 2013, the Partnership agreed to sell 39 lower 700 MHz B block spectrum licenses to AT&T Inc. (AT&T) in exchange for a payment of $1.9 billion and the transfer by AT&T to the Partnership of AWS (10 MHz) licenses in certain markets in the western United States. The Partnership also agreed to sell certain lower 700 MHz B block spectrum licenses to an investment firm for a payment of $0.2 billion. These transactions are subject to approval by the FCC and the Department of Justice (DOJ). When finalized, the sales will result in the completion of the open sale process. The Partnership expects to deploy the remaining licenses as necessary to meet its own spectrum needs.

Alltel Divestiture Markets

As a condition of the regulatory approvals to complete the acquisition of Alltel Corporation (Alltel) in January 2009, the Partnership was required to divest overlapping properties in 105 operating markets in 24 states (Alltel Divestiture Markets). During the second quarter of 2010, AT&T Mobility acquired 79 of the 105 Alltel Divestiture Markets, including licenses and network assets, for approximately $2.4 billion in cash and Atlantic Tele-Network, Inc. acquired the remaining 26 Alltel Divestiture Markets, including licenses and network assets, for $0.2 billion in cash.

During 2010, the Partnership recorded a tax charge of approximately $0.2 billion for the taxable gain associated with these transactions.

 

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Other

During 2012, the Partnership acquired various other wireless licenses and markets for cash consideration that was not significant and recorded $0.2 billion of goodwill as a result of these transactions.

During 2011, the Partnership acquired various other wireless licenses and markets for cash consideration that was not significant.

During 2010, the Partnership acquired the net assets and related customers of six operating markets in Louisiana and Mississippi in a transaction with AT&T Inc. for cash consideration of $0.2 billion. The purchase price allocation resulted in $0.1 billion of wireless licenses and $0.1 billion of goodwill.

3. Wireless Licenses, Goodwill and Other Intangibles, Net

Wireless Licenses

Changes in the carrying amount of Wireless licenses are as follows:

 

(dollars in millions)
Balance as of January 1, 2011		$	72,843
Acquisitions (Note 2)			58
Capitalized interest on wireless licenses			196
Balance as of December 31, 2011			73,097
Acquisitions (Note 2)			4,544
Capitalized interest on wireless licenses			205
Reclassifications, adjustments and other			(204	)
Balance as of December 31, 2012		$	77,642

Reclassifications, adjustments, and other include the exchanges of wireless licenses in 2012. See Note 2 (“Acquisitions and Divestitures”) for additional details.

During the years ended December 31, 2012 and 2011, approximately $7.3 billion and $2.2 billion, respectively, of wireless licenses were under development for commercial service for which the Partnership was capitalizing interest costs.

The average remaining renewal period of the Partnership’s wireless license portfolio was 6.1 years as of December 31, 2012. See Note 1, Wireless Licenses, for further details.

Goodwill

Changes in the carrying amount of Goodwill are as follows:

 

(dollars in millions)
Balance as of January 1, 2011		$	17,434
Acquisitions (Note 2)			94
Balance as of December 31, 2011			17,528
Acquisitions (Note 2)			209
Balance as of December 31, 2012		$	17,737

 

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Other Intangibles, net

Other intangibles, net are included in Other intangibles and other assets, net and consist of the following:

 

		At December 31, 2012												At December 31, 2011
(dollars in millions)		Gross Amount				Accumulated Amortization				Net Amount				Gross Amount				Accumulated Amortization				Net Amount
Customer lists (6 to 8 years)		$	2,187			$	(1,550	)		$	637			$	2,152			$	(1,253	)		$	899
Non-network internal-use software (5 to 7 years)			1,462				(589	)			873				1,225				(507	)			718
Other (2 to 3 years)			26				(21	)			5				25				(18	)			7
Total		$	3,675			$	(2,160	)		$	1,515			$	3,402			$	(1,778	)		$	1,624

The amortization expense for other intangible assets was as follows:

 

Years		(dollars in millions)
2012			$ 465
2011			513
2010			687

Estimated annual amortization expense for other intangible assets is as follows:

 

Years		(dollars in millions)
2013			$ 431
2014			360
2015			287
2016			206
2017			120

4. Fair Value Measurements and Financial Instruments

The following table presents the balances of assets measured at fair value on a recurring basis as of December 31, 2012:

 

(dollars in millions)		Level 1				Level 2				Level 3				Total
Assets:
Other intangibles and other assets, net:
Derivative contracts—Cross currency swaps (Non-current)		$	—			$	153			$	—			$	153

Derivative contracts are valued using models based on readily observable market parameters for all substantial terms of the Partnership’s derivative contracts and thus are classified within Level 2. The Partnership uses mid-market pricing for fair value measurements of its derivative instruments.

The Partnership recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the fair value hierarchy during 2012.

Fair Value of Short-term and Long-term Debt

The fair value of the Partnership’s debt is determined using various methods, including quoted market prices for identical terms and maturities, which is a Level 1 measurement, as well as quoted prices for similar terms and maturities in inactive markets and future cash flows discounted at current rates, which are Level 2 measurements. The fair value of the Partnership’s short-term and long-term debt, excluding capital leases, was as follows:

 

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		At December 31, 2012								At December 31, 2011
(dollars in millions)		Carrying Value				Fair Value				Carrying Value				Fair Value
Short and long-term debt, excluding capital leases		$	10,105			$	12,235			$	11,611			$	14,047

Derivative Instruments

The Partnership has entered into derivative transactions to manage its exposure to fluctuations in foreign currency exchange rates and interest rates. The Partnership employs risk management strategies which may include the use of a variety of derivatives including cross currency swaps and interest rate swap agreements. The Partnership does not hold derivatives for trading purposes.

Cross Currency Swaps

The Partnership previously entered into cross currency swaps designated as cash flow hedges to exchange approximately $1.6 billion of British Pound Sterling and Euro-denominated debt into U.S. dollars and to fix its future interest and principal payments in U.S. dollars, as well as to mitigate the impact of foreign currency transaction gains or losses. A portion of the gains and losses recognized in Other comprehensive income was reclassified to Other income and (expense), net to offset the related pretax foreign currency transaction gain or loss on the underlying debt obligations. The fair value of the outstanding swaps was not material at December 31, 2012 or December 31, 2011. During 2012 and 2011 the gains and losses with respect to these swaps were not material.

Concentrations of Credit Risk

Financial instruments that subject us to concentrations of credit risk consist primarily of temporary cash investments, trade receivables and derivative contracts. The Partnership’s policy is to deposit its temporary cash investments with major financial institutions. Counterparties to the Partnership’s derivative contracts are also major financial institutions. The financial institutions have all been accorded high ratings by primary rating agencies. The Partnership limits the dollar amount of contracts entered into with any one financial institution and monitors its counterparties’ credit ratings. The Partnership generally does not give or receive collateral on swap agreements due to its credit rating and those of its counterparties. While the Partnership may be exposed to credit losses due to the nonperformance of its counterparties, the Partnership considers the risk remote and does not expect the settlement of these transactions to have a material effect on its results of operations or financial condition.

5. Debt

Changes to debt during 2012 are as follows:

 

(dollars in millions)		Debt Maturing within One Year				Long-term Debt				Total
Balance at January 1, 2012		$	1,553			$	10,058			$11,611
Repayments of long-term borrowings and capital lease obligations			(1,569	)			—			(1,569)
Reclassifications of long-term debt			1,465				(1,465	)		—
Other			(1	)			72			71
Balance at December 31, 2012		$	1,448			$	8,665			$10,113

 

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Outstanding long-term debt obligations are as follows:

 

						(dollars in millions)
At December 31,		Interest Rates %		Maturities		2012				2011
Notes payable and other		5.55 - 8.88		2013 - 2018		$	8,635			$	9,331
Alltel assumed notes		6.50 - 7.88		2013 - 2032			1,500				2,315
Capital lease obligations (average rate of 7.2%)							8				—
Unamortized discount, net of premium							(30	)			(35	)
Total long-term debt, including current maturities							10,113				11,611
Less long-term debt maturing within one year							1,448				1,553
Total long-term debt						$	8,665			$	10,058

Verizon Wireless Capital LLC, a wholly-owned subsidiary of the Partnership, is a limited liability company formed under the laws of Delaware on December 7, 2001 as a special purpose finance subsidiary to facilitate the offering of debt securities of the Partnership by acting as co-issuer. Other than the financing activities as a co-issuer of the Partnership’s indebtedness, Verizon Wireless Capital LLC has no material assets, operations or revenues. The Partnership is jointly and severally liable with Verizon Wireless Capital LLC for co-issued notes.

Discounts, premiums, and capitalized debt issuance costs are amortized using the effective interest method.

2012

During February 2012, $0.8 billion of 5.25% Notes matured and were repaid. During July 2012, $0.8 billion of 7.0% Notes matured and were repaid.

2011

During May 2011, $4.0 billion aggregate principal amount of the Partnership’s two-year fixed and floating rate notes matured and were repaid. During December 2011, the Partnership repaid $0.9 billion upon maturity for the €0.7 billion of 7.625% Notes, and the related cross currency swap was settled.

Term Notes Payable to Affiliate

Under the terms of a fixed rate promissory note with Verizon Financial Services LLC (“VFSL”), a wholly-owned subsidiary of Verizon, the Partnership may borrow, repay and re-borrow up to a maximum principal amount of $0.8 billion. Amounts borrowed under this note bear interest at a rate of 5.8% per annum. The fixed rate note matures August 1, 2013. As of December 31, 2012, outstanding borrowings under this note were included within Other current liabilities on the consolidated balance sheet and were not material.

Debt Covenants

As of December 31, 2012, the Partnership is in compliance with all of its debt covenants.

 

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Maturities of Long-Term Debt

Maturities of long-term debt outstanding at December 31, 2012 are as follows:

 

Years		(dollars in millions)
2013			$ 1,448
2014			3,495
2015			648
2016			299
2017			—
Thereafter			4,223

6. Long-Term Incentive Plan

Verizon Wireless Long-Term Incentive Plan (Wireless Plan)

The Wireless Plan provides compensation opportunities to eligible employees and other participating affiliates of the Partnership. The plan provides rewards that are tied to the long-term performance of the Partnership. Under the Wireless Plan, Value Appreciation Rights (VARs) were granted to eligible employees. As of December 31, 2012, all VARs were fully vested. The Partnership has not granted new VARs since 2004.

VARs reflect the change in the value of the Partnership, as defined in the Wireless Plan. Similar to stock options, the valuation is determined using a Black-Scholes model. Once VARs become vested, employees can exercise their VARs and receive a payment that is equal to the difference between the VAR price on the date of grant and the VAR price on the date of exercise, less applicable taxes. All outstanding VARs are fully exercisable and have a maximum term of 10 years. All VARs were granted at a price equal to the estimated fair value of the Partnership, as defined in the Wireless Plan, at the date of the grant.

The Partnership employs the income approach, a standard valuation technique, to arrive at the fair value of the Partnership on a quarterly basis using publicly available information. The income approach uses future net cash flows discounted at market rates of return to arrive at an estimate of fair value, as defined in the plan.

The following table summarizes the assumptions used in the Black-Scholes model for the year ended December 31, 2012:

 

		2012 End of Period
Risk-free rate		0.19%
Expected term (in years)		0.62
Expected volatility		43.27%

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the measurement date. Expected volatility was based on a blend of the historical and implied volatility of publicly traded peer companies for a period equal to the VARs expected life ending on the measurement date.

For the years ended December 31, 2012, 2011 and 2010, the intrinsic value of VARs exercised during the period was $0.1 billion, respectively.

Cash paid to settle VARs for the years ended December 31, 2012, 2011 and 2010 was $0.1 billion, respectively.

 

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Awards outstanding at December 31, 2012, 2011 and 2010 under the Wireless Plan are summarized as follows:

 

						Weighted Average
						Exercise Price				Vested
(shares in thousands)		VARs(a)				of VARs(a)				VARs(a)
Outstanding, January 1, 2010			16,591			$	16.54				16,591
Exercised			(4,947	)			24.47
Cancelled/Forfeited			(75	)			22.72
Outstanding, December 31, 2010			11,569				13.11				11,569
Exercised			(3,303	)			14.87
Cancelled/Forfeited			(52	)			14.74
Outstanding, December 31, 2011			8,214				12.39				8,214
Exercised			(3,427	)			10.30
Cancelled/Forfeited			(21	)			11.10
Outstanding, December 31, 2012			4,766			$	13.89				4,766

 

(a)	The weighted average exercise price is presented in dollars; VARs are presented in units. At December 31, 2012 all outstanding VARs had an exercise price of $13.89 and have a weighted average remaining contractual life of 1.25 years.

As of December 31, 2012 the aggregate intrinsic value of VARs outstanding and vested was $0.2 billion.

Verizon Communications Inc. Long-Term Incentive Plan

The Verizon Communications Inc. Long-Term Incentive Plan (the Verizon Plan) permits the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other awards to Partnership employees. The maximum number of shares available for awards from the Verizon Plan is 119.6 million shares.

Restricted Stock Units

The Verizon Plan provides for grants of Restricted Stock Units (RSUs) that generally vest at the end of the third year after the grant. The RSUs granted prior to January 1, 2010 are classified as liability awards because the RSUs will be paid in cash upon vesting. The RSUs granted subsequent to January 1, 2010 are classified as equity awards because the RSUs will be paid in Verizon common stock upon vesting. The RSU equity awards are measured using the grant date fair value of Verizon common stock and are not remeasured at the end of each reporting period. Dividend equivalent units are also paid to participants at the time the RSU award is paid, and in the same proportion as the RSU award.

The Partnership had approximately 4.7 million and 4.6 million RSUs outstanding under the Verizon Plan as of December 31, 2012 and 2011, respectively.

Performance Stock Units

The Verizon Plan also provides for grants of Performance Stock Units (PSUs) that generally vest at the end of the third year after the grant. As defined by the Verizon Plan, the Human Resources Committee of the Board of Directors of Verizon determines the number of PSUs a participant earns based on the extent to which the corresponding performance goals have been achieved over the three-year performance cycle. The PSUs are classified as liability awards because the PSU awards are paid in cash upon vesting. The PSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the price of Verizon common stock as well as performance relative to the targets. Dividend equivalent units are also paid to participants at the time that the PSU award is determined and paid, and in the same proportion as the PSU award.

 

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The Partnership had approximately 7.0 million and 6.8 million PSUs outstanding under the Verizon Plans as of December 31, 2012 and 2011, respectively.

As of December 31, 2012, unrecognized compensation expense related to the unvested portion of the Partnership’s RSUs and PSUs was approximately $0.1 billion and is expected to be recognized over a weighted-average period of approximately two years.

Stock-Based Compensation Expense

For each of the years ended December 31, 2012, 2011 and 2010, the Partnership recognized compensation expense for stock based compensation related to VARs, RSUs and PSUs of $0.3 billion, $0.2 billion and $0.2 billion, respectively.

7. Income Taxes

Provision for Income Taxes

The provision for income taxes consists of the following:

 

						(dollars in millions)
Years Ended December 31,		2012				2011				2010
Current tax provision:
Federal		$	106			$	476			$	874
State and local			(28	)			103				128
			78				579				1,002
Deferred tax provision:
Federal			35				369				1
State and local			88				(1	)			64
			123				368				65
Provision for income taxes		$	201			$	947			$	1,067

A reconciliation of the income tax provision computed at the statutory tax rate to the Partnership’s effective tax rate is as follows:

 

		(dollars in millions)
Years Ended December 31,		2012				2011				2010
Income tax provision at the statutory rate		$	7,481			$	6,264			$	6,210
State and local income taxes, net of U.S. federal benefit			47				57				140
Other			3				(7	)			183
Partnership income not subject to federal or state income taxes			(7,330	)			(5,367	)			(5,466)
Provision for income tax		$	201			$	947			$	1,067

 

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Deferred taxes arise because of differences in the book and tax bases of certain assets and liabilities. Significant components of the Partnership’s deferred taxes are shown in the following table:

 

		(dollars in millions)
At December 31,		2012				2011
Deferred tax assets:
Net operating loss carryforward		$	122			$	101
Valuation allowance			(55	)			(35)
Other			134				195
Total deferred tax assets			201				261
Deferred tax liabilities:
Intangible assets			9,355				9,293
Plant, property and equipment			1,445				1,444
Other			264				297
Total deferred tax liabilities			11,064				11,034
Net deferred tax asset-current(a)			76				89
Net deferred tax liability-non-current		$	10,939			$	10,862

 

(a)	Included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

At December 31, 2012, the Partnership had state net operating loss carryforwards of $3.0 billion. These net operating loss carryforwards expire at various dates principally from December 31, 2017 through December 31, 2032.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

		(dollars in millions)
		2012				2011				2010
Balance as of January 1		$	267			$	393			$	506
Additions based on tax positions related to the current year			13				10				21
Additions for tax positions of prior years			72				53				10
Reductions for tax positions of prior years			(49	)			(187	)			(106)
Reductions due to lapse of applicable statute of limitations			—				(2	)			—
Settlements			3				—				(38)
Balance as of December 31		$	306			$	267			$	393

Included in the total unrecognized tax benefits balance is $0.2 billion as of December 31, 2012, 2011 and 2010 that, if recognized, would favorably affect the effective tax rate. The remaining unrecognized tax benefits relate to temporary items that would not affect the effective tax rate.

The after-tax accrual for the payment of interest and penalties in the balance sheet relating to the unrecognized tax benefits reflected above was not significant for the years ended December 31, 2012, 2011 and 2010.

 

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The net after-tax benefits (expenses) related to interest in the provision for income taxes was not significant as of December 31, 2012, 2011 and 2010.

The Partnership or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and local jurisdictions. The Partnership is generally no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2000. The Internal Revenue Service (IRS) is currently examining some of the Partnership’s subsidiaries. As a result of the anticipated resolution of various income tax matters within the next twelve months, the Partnership believes that it is reasonably possible that the unrecognized tax benefits may be adjusted. An estimate of the amount of the change attributable to any such settlement cannot be made until issues are further developed or examinations close.

8. Leases

As Lessee

The Partnership has entered into operating leases for facilities and equipment used in its operations. Lease contracts include renewal options that include rent expense adjustments based on the Consumer Price Index as well as annual and end-of-lease term adjustments. Rent expense is recorded on a straight-line basis over the non-cancellable lease term which is generally determined to be the initial lease term. Total rent expense under operating leases amounted to $1.8 billion in 2012, $1.7 billion in 2011 and $1.8 billion in 2010.

The aggregate future minimum rental commitments under non-cancellable operating leases, excluding renewal options that are not reasonably assured for the periods shown at December 31, 2012, are as follows:

 

(dollars in millions) Years		Operating Leases
2013		$	1,536
2014			1,381
2015			1,201
2016			990
2017			755
Thereafter			3,356
Total minimum rental commitments		$	9,219

9. Supplementary Financial Information

Supplementary Balance Sheet Information

 

		At December 31,
(dollars in millions)		2012				2011
Receivables, Net:
Accounts receivable		$	5,848			$	5,287
Other receivables			864				714
Unbilled revenue			295				326
			7,007				6,327
Less: allowance for doubtful accounts			(350	)			(338	)
Receivables, net		$	6,657			$	5,989

 

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				(dollars in millions)
At December 31,		Lives (years)		2012				2011
Plant, Property and Equipment, Net:
Land		—		$	244			$	245
Buildings		20-45			10,855				9,986
Wireless plant and equipment		3-15			54,867				50,914
Furniture, fixtures and equipment		3-10			3,603				3,673
Leasehold improvements		5			4,310				3,987
Construction-in-progress(b)		—			2,572				1,911
					76,451				70,716
Less: accumulated depreciation(c)					(41,905	)			(37,265	)
Plant, property and equipment, net(a)				$	34,546			$	33,451

 

(a)	Interest costs of $0.1 billion and network engineering costs of $0.4 billion were capitalized during each of the years ended December 31, 2012 and 2011, respectively.

 

(b)	Construction-in-progress includes $1.2 billion and $0.7 billion of accrued but unpaid capital expenditures as of December 31, 2012 and 2011, respectively.

 

(c)	Depreciation of plant, property and equipment was $7.5 billion, $7.4 billion and $6.8 billion, for the years ended December 31, 2012, 2011 and 2010, respectively.

 

		(dollars in millions)
At December 31,		2012				2011
Accounts Payable and Accrued Liabilities:
Accounts payable, accrued interest and accrued expenses		$	4,798			$	4,268
Accrued payroll and related employee benefits			1,385				1,376
Taxes payable			427				476
Accrued commissions			924				695
Accounts payable and accrued liabilities		$	7,534			$	6,815

Supplementary Statements of Income Information

 

		(dollars in millions)
For the Years Ended December 31,		2012				2011				2010
Advertising and Promotional Cost:		$	1,826			$	1,925			$	1,801
Employee Benefit Plans:
Matching contribution expense		$	247			$	231			$	217
Profit sharing expense			60				82				108
Interest Expense, Net:
Interest expense		$	(776)			$	(954)			$	(1,094)
Capitalized interest			334				344				778
Interest expense, net		$	(442)			$	(610)			$	(316)

 

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Supplementary Cash Flows Information

 

		(dollars in millions)
For the Years Ended December 31,		2012				2011				2010
Net cash paid for income taxes		$	245			$	505			$	1,236
Interest paid, net of amounts capitalized			464				610				284

10. Noncontrolling Interest

Noncontrolling interests in equity of subsidiaries were as follows:

 

		(dollars in millions)
At December 31,		2012				2011
Verizon Wireless of the East LP		$	1,179			$	1,179
Cellular partnerships - various			865				773
Noncontrolling interest in consolidated entities		$	2,044			$	1,952

Verizon Wireless of the East LP

Verizon Wireless of the East LP is a limited partnership formed in 2002 and is controlled and managed by the Partnership. Verizon held the noncontrolling interest of Verizon Wireless of the East LP at December 31, 2012 and 2011. As per the agreement between the Partnership and Verizon, Verizon has not been allocated any of the profits of Verizon Wireless of the East LP.

11. Other Transactions with Affiliates

In addition to transactions with Affiliates in Note 5, other significant transactions with Affiliates are summarized as follows:

 

		(dollars in millions)
For the Years Ended December 31,		2012				2011				2010
Revenue related to transactions with affiliated companies		$	83			$	87			$	94
Cost of service(a)			1,365				1,396				1,471
Selling, general and administrative expenses(b)			584				312				225
Interest incurred(c)			—				—				9

 

(a)	Affiliate cost of service primarily represents charges for long distance, direct telecommunication and roaming services provided by affiliates.

 

(b)

Affiliate selling, general and administrative expenses include charges from affiliates for services provided, including insurance, leases, office telecommunications, and billing and lockbox services, as well as services billed from Verizon Corporate Services, Verizon Sourcing LLC, Verizon Corporate Resources Group and Verizon Data Solutions for functions performed under service level agreements.

 

(c)	Interest costs of $7 million were capitalized in Wireless licenses and Plant, property and equipment, net in the year ended December 31, 2010.

 

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Other Transactions with Affiliates

Accounts payable and accrued liabilities as of December 31, 2012 and 2011 include $92 million and $44 million, respectively, due to affiliates primarily comprised of costs associated with services provided in the normal course of business and roaming services.

Distributions to Partners

In May 2013, the Board of Representatives of the Partnership declared a distribution to its owners in the aggregate amount of $7.0 billion, payable on June 25, 2013, in proportion to their respective partnership interests on the date of such distribution. Based on current ownership interests in the Partnership, Verizon will receive cash payments aggregating $3.85 billion and Vodafone will receive cash payments aggregating $3.15 billion.

In November 2012, the Board of Representatives of the Partnership declared a distribution to its owners, which was paid in the fourth quarter of 2012 in proportion to their partnership interests on the payment date, in the aggregate amount of $8.5 billion. As a result, Vodafone received a cash payment of $3.8 billion and the remainder of the distribution was received by Verizon.

In July 2011, the Board of Representatives of the Partnership declared a distribution to its owners, which was paid in the first quarter of 2012 in proportion to their partnership interests on the payment date, in the aggregate amount of $10 billion. As a result, Vodafone received a cash payment of $4.5 billion and the remainder of the distribution was received by Verizon.

As required under the Partnership Agreement, the Partnership paid aggregate tax distributions of $7.2 billion, $3.1 billion and $3.8 billion to its Partners during the years ended December 31, 2012, 2011 and 2010 respectively. In addition to quarterly tax distribution to its Partners, its Partners have directed the Partnership to make supplemental tax distributions to them, subject to the Partnership’s board of representatives’ right to reconsider these distributions based on significant changes in overall business and financial conditions. During the year ended December 31, 2012, the Partnership made supplemental tax distributions in the aggregate amount of $0.7 billion, which is included in the total distribution paid above. Subsequent annual supplemental tax distributions in the amount of $0.9 billion, comprised of $0.5 billion to Verizon Communications and $0.4 billion to Vodafone in each of 2013 and 2014, are expected to be paid in equal quarterly installments during each of those years on the same dates that the established regular quarterly tax distributions are made.

During February 2013, the Partnership paid aggregate tax distributions of $2.1 billion to its Partners.

12. Accumulated Other Comprehensive Income

Comprehensive income consists of net income and other gains and losses affecting Partners’ capital that, under GAAP, are excluded from net income. The components of Accumulated other comprehensive income are as follows:

 

		(dollars in millions)
Years Ended December 31,		2012				2011
Unrealized gains on cash flow hedges		$	80			$	59
Defined benefit pension and postretirement plans			4				4
Accumulated other comprehensive income		$	84			$	63

13. Commitments and Contingencies

Bell Atlantic, now known as Verizon Communications, and Vodafone entered into an alliance agreement to create a wireless business composed of both companies’ U.S. wireless assets, as amended, which the Partnership refers to as the “Alliance Agreement”. The Alliance Agreement contains a provision, subject to specified limitations, that requires Verizon and Vodafone to indemnify the Partnership for certain contingencies, excluding PrimeCo Personal Communications L.P. contingencies, arising prior to the formation of the Partnership.

 

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Where it is determined, in consultation with counsel based on litigation and settlement risks, that a loss is probable and estimable in a given matter, the Partnership establishes an accrual. In none of the currently pending matters is the amount of accrual material. An estimate of the reasonably possible loss or range of loss in excess of the amounts already accrued cannot be made at this time due to various factors typical in contested proceedings, including (1) uncertain damage theories and demands; (2) a less than complete factual record; (3) uncertainty concerning legal theories and their resolution by courts or regulators; and (4) the unpredictable nature of the opposing party and its demands. The Partnership continuously monitors these proceedings as they develop and adjusts any accrual or disclosure as needed. The Partnership does not expect that the ultimate resolution of any pending regulatory or legal matter in future periods will have a material effect on the Partnership’s financial condition, but it could have a material effect on the Partnership’s results of operations for a given reporting period.

Verizon has entered into reimbursement agreements with third-party lenders that permit these lenders to issue letters of credit to third parties on behalf of the Partnership and the Partnership’s subsidiaries, including Alltel, following the acquisition of Alltel.

The Partnership has several commitments primarily to purchase handsets and peripherals, equipment, software, programming and network services, and marketing activities, which will be used or sold in the ordinary course of business, from a variety of suppliers totaling $24.7 billion. Of this total amount, $23.5 billion is attributable to 2013, $0.5 billion is attributable to 2014 through 2015, $0.7 billion is attributable to 2016 through 2017 and an immaterial amount is attributable to years thereafter. These amounts do not represent the Partnership’s entire anticipated purchases in the future, but represent only those items that are the subject of contractual obligations. The Partnership’s commitments are generally determined based on the noncancelable quantities or termination amounts. Purchases against the Partnership’s commitments for 2012 totaled approximately $10.1 billion. The Partnership also purchases products and services as needed with no firm commitment.

 

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Fees Payable By ADR Holders

The Bank of New York Mellon, the depositary, collects its fees for delivery and surrender of ADRs directly from investors depositing shares or surrendering ADRs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors, including in connection with the payment of dividends, by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

 

Persons depositing or withdrawing shares must pay:				For:
$5.00 (or less) per 100 ADRs (or portion of 100 ADRs)				•         Issuance of ADRs, including issuances resulting from a distribution of shares or rights or other property   •         Cancellation of ADRs for the purpose of withdrawal, including if the deposit agreement terminates
$.02 (or less) per ADR (or portion thereof). The current per ADR fee to be charged for an interim dividend is $0.01 per ADR and for a final dividend is $0.02 per ADR.				•         Any cash distribution to ADR registered holders
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADRs				•         Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADR registered holders
Registration or transfer fees				•         Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
Expenses of the depositary				•         Cable, telex, facsimile transmissions and delivery expenses (when expressly provided in the deposit agreement)   •         Converting foreign currency to US dollars
Taxes and other governmental charges the depositary or the custodian have to pay on any ADR or share underlying an ADR, for example, stock transfer taxes, stamp duty or withholding taxes				•         As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities				•         As necessary

 

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Fees Payable By The Depositary To The Issuer

As set out above, pursuant to the deposit agreement, the depositary may charge up to $0.02 per ADR in respect of dividends paid by us. We have agreed with the depositary that any dividend fee collected by it is paid to us, net of any dividend collection fee charged by it. For the year ended 31 March 2013, we agreed with the depositary that it will charge $0.01 per ADR in respect of any interim dividend and $0.02 per ADR in respect of any final dividend paid during that year.

As at 31 March 2013, we have received approximately $25.5 million arising out of fees charged in respect of dividends paid during the year. We also have an agreement with the depositary that it will absorb any of its out-of-pocket maintenance costs for servicing the holders of the ADRs up to $1,250,000 per calendar year. However, any of the depositary’s out-of-pocket maintenance costs which exceed the $1,250,000 annual aggregate limits will be reimbursed by us.

 

C-2

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SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

Date: 7 June 2013

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Index of Exhibits to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2013

 

1.1

Articles of Association, as adopted on June 30, 1999 and including all amendments made on July 25, 2001, July 26, 2005, July 25, 2006, July 24, 2007, July 29, 2008, July 28, 2009 and July 27, 2010, of the Company (incorporated by reference to Exhibit 1.1 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2011).

 

2.1	Indenture, dated as of February 10, 2000, between the Company and Citibank, N.A., as Trustee, including forms of debt securities (incorporated by reference to Exhibit 4(a) of Post Effective Amendment No. 1 to the Company’s Registration Statement on Form F-3, dated November 24, 2000).

 

2.2	Agreement of Resignation, Appointment and Acceptance dated as of July 24, 2007, among the Company, Citibank N.A. and The Bank of New York Mellon (incorporated by reference to Exhibit 2.2 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2008).

 

2.3	Tenth Supplemental Trust Deed dated July 8, 2011, between the Company and the Law Debenture Trust Corporation p.l.c. further modifying the provisions of the Trust Deed dated July 16, 1999 relating to a €30,000,000,000 Euro Medium Term Note Programme.

 

4.1

Agreement for US$4,015,000,000 five year Revolving Credit Facility dated March 9, 2011, among the Company and various lenders, subsequently amended when the Company exercised an option to extend the agreement by one year (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2011).

 

4.2	Lender Accession Agreement with Bank of China Limited, London Branch, effective as of March 17, 2011 (incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2011).

 

4.3	Agreement for €4,000,000,000 five year Revolving Credit Facility dated July 1, 2010 among the Company and various lenders (incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2011).

 

4.4	Lender Accession Agreement with Bank of China Limited, London Branch, effective as of March 17, 2011 (incorporated by reference to Exhibit 4.8 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2011).

 

4.5	Vodafone Group 1999 Long Term Stock Incentive Plan (incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2001).

 

4.6	Vodafone Group 2005 Global Incentive Plan (incorporated by reference to Exhibit 4.8 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2006).

 

4.7	Service Agreement of Andrew Halford (incorporated by reference to Exhibit 4.16 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2006).

 

4.8	Letter of Appointment of Dr. John Buchanan (incorporated by reference to Exhibit 4.11 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2003).

 

4.9	Letter of Appointment of Anne Lauvergeon (incorporated by reference to Exhibit 4.22 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2006).

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4.10	Letter of Appointment of Luc Vandevelde (incorporated by reference to Exhibit 4.22 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2004).

 

4.11	Letter of Appointment of Anthony Watson (incorporated by reference to Exhibit 4.26 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2006).

 

4.12	Letter of Appointment of Philip Yea (incorporated by reference to Exhibit 4.27 to the Company’s Annual Report for the financial year ended March 31, 2006).

 

4.13	Service Agreement of Vittorio Colao (incorporated by reference to Exhibit 4.22 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2009).

 

4.14	Letter of Appointment of Alan Jebson (incorporated by reference to Exhibit 4.23 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2007).

 

4.15	Letter of Appointment of Nick Land (incorporated by reference to Exhibit 4.24 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2007).

 

4.16	Letter of Appointment of Simon Murray (incorporated by reference to Exhibit 4.25 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2008).

 

4.17	Letter of Appointment of Sam Jonah (incorporated by reference to Exhibit 4.26 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2009).

 

4.18	Service Agreement of Michel Combes (incorporated by reference to Exhibit 4.27 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2009)

 

4.19	Service Agreement of Stephen Pusey (incorporated by reference to Exhibit 4.28 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2009).

 

4.20	Letter of Indemnification for Andy Halford (incorporated by reference to Exhibit 4.25 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010).

 

4.21	Letter of Indemnification for Michel Combes (incorporated by reference to Exhibit 4.26 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010).

 

4.22	Letter of Indemnification for Steve Pusey (incorporated by reference to Exhibit 4.27 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010).

 

4.23	Letter of Indemnification for Dr. John Buchanan (incorporated by reference to Exhibit 4.28 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010).

 

4.24	Letter of Indemnification for Philip Yea (incorporated by reference to Exhibit 4.29 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010).

 

4.25	Letter of Indemnification for Luc Vandevelde (incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010).

 

4.26	Letter of Appointment of Renee James (incorporated by reference to Exhibit 4.35 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2011).

 

4.27	Letter of Appointment of Gerard Kleisterlee (incorporated by reference to Exhibit 4.36 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2011).

 

4.28	Letter of Appointment of Omid Kordestani.

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7.	Unaudited Computation of Ratio of Earnings to Fixed Charges for the financial years ended March 31, 2013, 2012, 2011, 2010 and 2009.

 

8.	The list of the Company’s subsidiaries is incorporated by reference to Note A-8 to the Consolidated Financial Statements included in the Annual Report on Form 20-F for the financial year ended March 31, 2013.

 

12.	Rule 13a – 14(a) Certifications.

 

13.	Rule 13a – 14(b) Certifications. These certifications are furnished only and are not filed as part of the Annual Report on Form 20-F for the financial year ended March 31, 2013.

 

15.1	Consent letter of Deloitte LLP, London.

 

15.2	Consent letter of Deloitte & Touche LLP, New York.