Vodafone Group Plc Half year results For the six months ended 30 September 2016 15 November 2016
Disclaimer Information in this presentation relating to the price at which relevant investments have been bought or sold in the past or the yield on such investments cannot be relied upon as a guide to the future performance of such investments. This presentation does not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire or dispose of securities in any company within the Group. This presentation contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 which are subject to risks and uncertainties because they relate to future events. Some of the factors which may cause actual results to differ from these forward-looking statements are discussed on the final slide of this presentation. This presentation also contains non-gaap financial information which the Group s management believes is valuable in understanding the performance of the Group. However, non-gaap information is not uniformly defined by all companies and therefore it may not be comparable with similarly titled measures disclosed by other companies, including those in the Group s industry. Although these measures are important in the assessment and management of the Group s business, they should not be viewed in isolation or as replacements for, but rather as complementary to, the comparable GAAP measures. Vodafone, the Vodafone Portrait the Vodafone Speechmark, Vodacom, M-Pesa and Vodafone One are trade marks of the Vodafone Group. The Vodafone Rhombus is a registered design of the Vodafone Group. Other product and company names mentioned herein may be the trade marks of their respective owners. 2
Business review Vittorio Colao Group Chief Executive
First half highlights Financial performance Q2 Group service revenue +2.4% (Q1 +2.2%); underlying momentum offsets increased roaming drag Improvement led by Europe, +1.0%; base growth and more-for-more actions stabilising ARPU, AMAP, +7.1% H1 Group EBITDA +4.3% to 7.9bn, supported by strong cost control Non-cash impairment in India of 5.0bn, net of tax, reflecting increased competition Dividend per share c4.74, up 1.9% 1 Continued momentum in growth engines in Q2 Data: volume +61%; driven by growth in 4G customers to 59m Enterprise: continued outperformance, +3.3% service revenue growth Fixed: broadband base +327k to 14.0m, of which 6.0m on-net. 31m on-net NGN households reached Strategic progress Strengthened spectrum position in India: 4G in 17 key circles (91% of service revenues) 2 JV agreements: Ziggo Netherlands regulatory approval received, Sky New Zealand merger approval ongoing All growth rates shown in this document are organic unless otherwise stated 1. Based on 31 March 2016 year-end : exchange rate of 1.2647 2. Targeted coverage by end FY 16/17 4
Continued momentum Growing customer base Customer net adds Mobile contract Fixed broadband 1,444 230 1,290 1,135 414 416 1,425 1,415 (000s) 348 327 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Stabilising ARPU in Europe Consumer contract ARPU ( ) Group Europe AMAP 25.4 24.6 24.0 25.0 25.4 21.8 21.2 20.8 21.0 21.4 14.6 14.7 14.6 13.7 13.9 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Financials Service revenue growth 1 (%) Group Europe AMAP 7.4 7.7 6.7 7.1 6.5 1.2 1.4 1.8 2.2 2.4 0.3 1.0 (1.0) (0.6) (0.3) Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Contract customer growth, supported by lower churn Fixed net adds +42% due to Europe NGN Benefiting from more-for-more offers Growing revenue despite 0.4pp roaming regulation drag 1. Q4 15/16 shows underlying growth (excl leap year impact and accounting changes). Reported organic growth rates are Group +2.5%, Europe +0.5% and AMAP +8.1% 5
Enhancing customer experience: network Mobile network improvement Fixed network improvement 90% 4G coverage across Europe (+10pp YoY) 69% of European urban sites with fibre 1 User experience (%) European data sessions >3Mbps AMAP dropped call rate 90 88 1.16 0.99 82 0.68 53% NGN coverage in Europe, matching incumbents 37m on-net NGN coverage pro-forma for Ziggo European NGN homes reached Total On-net 37 22 66 27 82 31 (m) Q2 14/15 Q2 15/16 Q2 16/17 Q2 14/15 Q2 15/16 Q2 16/17 Best data network in 15/20 markets Largest NGN footprint in Europe, #2 on-net 1. Big 4 European markets (Germany, Italy, Spain, UK) 4G sites 6
Enhancing customer experience: CARE Network guarantee 17 markets Real time monitoring 13 markets 1 Personalised offers 17 markets 24/7 live help 14 markets 90% EU data sessions >3Mbps (+2pp) My Vodafone App penetration 39% (+13pp) Consumer contract churn 17.0% (-1.2pp) First contact resolution 66% (N/A) Percentage point improvements are YoY 1. My Vodafone App is available in 21 markets, with 13 markets offering real time monitoring 7
Challenger Lead/Co-lead Enhancing customer experience: Net Promoter Score Consumer NPS 1 (points) Consumer NPS Example CARE actions Gap to next best Gap to third 11 12 13 14 Spain, mobile network guarantee Network NPS +6 points Apr - Sep 16 1 2 1 (2) Mar 15 Sep 15 Mar 16 Sep 16 Gap to third maintained despite more-for-more actions Score not improving YoY Score improving YoY Lead/co-lead in 18/21 markets; 78% of revenue Germany, legacy migration to Red Giga tariffs to reward loyalty NPS +16 points May - Aug 16 '4G try me here' 1. Gap to next best based on 21 markets, gap to 3 rd based on 20 markets and represents the simple average of the difference in Consumer NPS between Vodafone and the 3rd ranking competitor. In markets where Vodafone is the 3rd ranking competitor the negative difference between Vodafone and the 2nd ranking competitor is used. 8
Growth engines: data take-up Increasing 4G penetration Growing data usage Further growth opportunity 4G customers (m) Mobile data traffic Mobile customers (% of base) Group Volume (PB) 4G data users Europe Growth (%) 3G/2G data users 30.1 24.3 34.8 28.1 46.8 33.4 52.5 36.0 58.9 39.3 700 600 500 75 67 417 455 64 498 62 569 670 61 80 70 60 50 40 30 Europe 122m 32 4 AMAP 348m 34 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 400 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 20 4G now 57% of EU data traffic (+19pp YoY) Rising smartphone average usage: Europe 1.4GB, +48%, AMAP 0.9GB, +37% Strong data growth driven by 4G 3G/4G capacity utilisation up only +1pp Smartphone penetration still only ~50% 9
Growth engines: data monetisation More-for-more actions... lowering unit data prices and stabilising ARPU Examples European ARPU per GB Consumer contract (local currency) Germany UK Italy 1 Spain + 2 Feb 2015 onwards Personalised CVM 4G, dedicated customer service EU roaming allowance 40% CAGR decline over last two years 29.8 25.8 23.4 28.1 28.5 23.9 24.8 April 2016 + 1-6 EU & US roaming allowance Extra 0.5-1GB 10.1 19.0 10.8 20.1 11.8 April 2016 + 5 Unlimited EU roaming Extra 1-2GB 4G max H1 13/14 H1 14/15 H1 15/16 H1 16/17 Q2 14/15 Q3 14/15 Q4 14/15 Q1 15/16 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 May 2016 + 1-4 EU roaming allowance Up to an extra 5GB More value to subscribers More value to operators 1. Consumer prepaid 10
Growth engines: enterprise Leading network and service Improving in mobile Growing in strategic areas Service revenue growth (%) Q2 service revenue growth (%) of H1 Group service revenue NPS leader out of Enterprise markets Q2 16/17 Q1 16/17 1 3.3 2.5 4.7 4.6 1.7 2.8 3.8 ~30% of Enterprise service revenue 14.7 21.3 Largest 4G IoT footprint Platform in countries countries IP-VPN global networks in Total Enterprise Fixed Mobile Fixed outperformance; IP-VPN +7.6% Mobile improvement; ARPU decline easing, customers +7.5% VGE IoT Cloud & Hosting VGE: lower growth; roaming impact IoT: 45m connections, +39% 1. Q1 16/17 service revenue growth has been restated to take into account the reallocation in Germany of certain customers from Enterprise SoHo to consumer 11
Growth engines: fixed and convergence - momentum Customer momentum Group fixed broadband net adds Total broadband NGN 414 416 415 374 294 230 348 381 327 (000s) 354 NGN self-build progress Germany Market leading 400 Mbps launched June Spain +0.6m HH in Q2 31m households passed +4m YoY Italy +0.2m in Q2. Enel rolling out in 5 cities, 250 longer-term Portugal +0.1m in Q2 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 51% of broadband customers on NGN (+6pp YoY) Greece Commenced fibre roll-out Ireland 65k Siro HH to be passed by year end 12
Growth engines: fixed and convergence - opportunity Further growth opportunity NGN on-net penetration Driving convergence % of Fixed broadband customers on converged offers On-net customers (m) On-net households (m) Penetration (%) 3.2 13.7 23 2.1 9.5 22 0.2 4.1 5 25% Q2 15/16 28% Q2 16/17 Others 0.4 3.4 12 Europe 5.9 30.7 19 Lowering churn via convergence Spain churn (%) 85% of Europe NGN base is now on-net Only 1.9 RGUs per unique fixed subscriber in Europe 9.8m TV customers (+121k QoQ) 27% -14pp 13% -7pp 6% Mobile only Triple Play Quad Play 1. A converged customer is a customer who has fixed broadband and mobile voice products and has a cross discount or an integrated convergent offer 13
Convergence momentum supported by regulatory process European Framework review: key proposals EC has committed to the idea that investment and competition are key... supporting Gigabit investments... ensuring competitive access conditions to very high capacity networks Minimum 25 year spectrum licences 63bn invested in the last 3 years Future remedy of choice is passive duct and pole access Access deregulated only if: investment is in fibre and there is sustainable competition via commercial agreements, co-investment or wholesale access No material regulatory impact on cable networks Further harmonisation of EU regulation Double lock safeguard; BEREC and EC can over-rule NRAs Roaming caps: 300m revenue impact in FY 16/17 pre-mitigation Partial mitigation through worry-free offers: 55% of roamers 14
Germany: improving in all segments Customer experience KPIs Financial results Consumer NPS Gap to next best Gap to third 7 (3) (4) H1 15/16 H1 16/17 (points) 14 Customer net adds Mobile contract Fixed 245 66 196 105 49 134 108 8 20 (000s) 92 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Service revenue growth (%) (1.8) (0.4) 1.6 1.6 3.1 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 4G coverage 89%, +9pp YoY; leading 375 Mbps in 27 cities Leading voice network quality CXX: migration of customers to new portfolios Growing branded consumer contract base Indirect channels competitive Mobile prepaid back to growth, +218k DSL net adds +20k (LY -32k); stable cable gross adds Mobile +1.3% (Q1-0.3%); stabilising ARPU; enterprise improved Fixed +6.1%; DSL turnaround, +2.9% (Q1-0.9%), cable strong +9.2% 1 H1 EBITDA +3.0%; margin 34.0%, +1.3pp revenue growth and cost efficiencies 1. Cable service revenue growth was 6.2% in Q2 (Q1 +6.6%) excluding one-off from reclassification of CPE revenue from non-service revenue to service revenue The German regulator intends to reduce mobile termination rates at the end of November 2016. An assumed 50% reduction would impact service revenue growth by around 1.5pp on a run-rate basis 15
Italy: growth driven by ARPU enhancement and stable active base Customer experience Consumer NPS (points) KPIs Customer net adds (000s) Financials Service revenue growth (%) Gap to next best Gap to third 7 8 Mobile Fixed 24 38 63 46 33 1.3 1.2 2.2 2 (4) H1 15/16 H1 16/17 (207) (266) (261) (289) (318) Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 (2.0) (0.3) Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Network NPS #1: 4G coverage 96%, 7.3m 4G customers Enel fibre deployment accelerating CXX: Satisfied or reimbursed network guarantee Mobile active prepaid base stable in Q2 Fixed broadband net adds +79k in H1 to 2.0m; 0.4m on fibre (+300k YoY) Mobile: +1.6% (Q1 +1.4%); consumer prepaid ARPU +9.3% Fixed +5.2% (Q1 +0.1%); strong base growth and higher ARPU EBITDA +10.3%, margin 36.7%, +2.6pp; tight cost control 16
UK: mixed performance Customer experience P3 network rating Co-best nationwide #1 voice nationwide #1 in London Touch point NPS (points) Sep 15 Leading network. 96% 4G coverage 1, recovering customer service CXX: first to remove line rental in consumer broadband (3) (35) Dec 15 (8) 4 Sep 16 13 KPIs Mobile contract Fixed 90 94 5 14 1 20 92 26 28 30 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Financials Customer net adds (000s) Service revenue growth (%) Mobile contract base +2% Fixed consumer broadband base accelerating up to 97k Reported Q4 ex. carrier effect (0.1) (0.5) (0.7) (0.8) (3.2) (2.1) Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Mobile -1.9% (Q1-3.6%); lapping 08XX regulation Fixed -2.9% (Q1-1.8%); loss of two large enterprise customers H1 EBITDA -6.5%, margin 18.9%, -2.8pp enterprise fixed, increased regulation, customer care costs 1. Based on Ofcom definition, Vodafone definition 92% 17
Spain: sustained growth and commercial momentum Customer experience Consumer NPS (points) KPIs Financials Customer net adds (000s) Service revenue growth (%) Gap to next best Gap to third 0 9 H1 15/16 H1 16/17 8 12 Mobile contract Fixed 92 28 83 79 105 64 53 1 91 40 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Reported Ex. handset financing (2.0) 1.0 0.7 0.6 (3.1) (3.2) 1.3 4.9 0.0 3.5 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 92% 4G coverage. 6.4m 4G customers 14.7m NGN homes passed, 9.5m on-net CXX: network performance guarantee launched in June Regained commercial momentum in Q2 following April tariff change Convergence: Vodafone One 2.0m users Stable underlying performance QoQ: M4M offers and higher customer base Q2 lapping OOB data proposition in PY H1 EBITDA +4.9%, margin 27.7%,+1.2pp; cost savings offset higher content costs 18
India: increased competitive pressures Customer experience KPIs Financial results Consumer NPS (points) Data users (m) Service revenue growth (%) Gap to next best Gap to third 0 1 H1 15/16 H1 16/17 2 6 Total 3G/4G 67 67 68 70 70 52% 3G/4G 24 26 28 32 36 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Regulatory impact 3 Reported 10.9 5.3 5.6 7.6 5.3 2.3 10.2 7.7 4.9 1.3 Underlying growth 6.3 0.9 5.3 6.4 5.4 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Network NPS #1 Spectrum holding +62% in auction 1 4G footprint in 17 circles, representing 94% of data revenue 2 Total data users flattening; increased competitive pressure Rising 3G/4G adoption: smartphone penetration 35% (+6pp YoY) Data revenue +16% (Q1 +22%); data prices -14% Voice revenue +2.7%; customer growth H1 EBITDA +2.6%; margin 29.6%, -0.1pp; higher network costs offset by opex savings 1. Vodafone invested a total of INR 203bn ( 2.7bn) in the October 2016 spectrum auction 2. By end FY 16/17 3. Regulatory impacts include MTRs, service tax, roaming price caps and other items 19
India: a leading telecom operator in a long-term growth market Continuing growth opportunity 1.3bn population Large market, fast GDP growth low penetration (%) 77 Voice SIM 40 Unique user Strong nationwide position #1 Brand #1 Consumer NPS #1 Enterprise mobility #1 retail outlets, leading CVM Prepared for more competition Commercial focus: High-end users Vodafone RED unlimited plans 4G 90 day promo: 10GB for price of 1GB Smartphones 1 4G handsets 1 254m devices 39% penetration 52m devices 8% Revenue market share (%) 17 23 Value seekers Low cost voice plans 10p local on-net 30p local off-net 30p long distance Flex One recharge fee for Calls, SMS and Data penetration Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q1 Investment focus: on 12 leadership and 5 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 strong challenger circles; ~91% of revenue 1. Estimated market penetration at May 2016 20
Vodacom: network leadership, continued strong growth Customer experience South Africa consumer NPS Gap to next best Gap to third 21 17 16 (points) 16 KPIs Total prepaid 86 Just 4 You 265 383 359 Financials South Africa total prepaid bundle sales (m) Vodacom service revenue growth (%) +33% South Africa Internationals 3.0 8.3 10.7 10.2 7.2 6.5 Group 3.9 7.2 6.3 4.4 4.1 5.7 4.4 5.6 2.6 H1 15/16 H1 16/17 H1 15/16 H1 16/17 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Leading 4G coverage 69%: #1 on download speeds and dropped calls CXX: Just 4 You ; launched Dropped Call Compensation with free minutes Customers +7.6%; record low contract churn 4.8% Prepaid net adds +920k Data users +4% 1, data bundles +47% SA: data revenue +21%, contract ARPU +5.7% Intl : customer registration pressure easing, return to positive net adds Group H1 EBITDA +4.0%; margin 38.6%, stable underlying as SA offsets Intl 1. Active data customers have been restated to exclude customers with free allocated data bundles not used 21
What s next? 4G+/5G Fiberisation Gigabit Vodafone CLOUD Internet of Things 22
What s next: key programs towards a Gigabit Vodafone Technology Network leadership Commercial Best in class service Efficiency Top quartile 4G+/5G Fiberisation sites and Fttx CXX/CARE Fit 4 Growth IT transformation by country /cluster Enterprise divisions VGE, IoT and Cloud & Hosting Digital Virtualisation and cloud Transformation New Consumer IoT and Data analytics units Zero based budgeting 23
Financial review Nick Read Group Chief Financial Officer 24
Organic EBITDA growing faster than revenue Organic service revenue ( bn) 1 Organic EBITDA ( bn) 1 Organic EBIT ( bn) 1 24.2 24.8 7.6 7.9 2.1 2.2 2 H1 15/16 H1 16/17 H1 15/16 H1 16/17 H1 15/16 H1 16/17 YoY growth +1.0% +4.3% +3.6% +2.0% +2.3% +1.9% H1 15/16 H2 15/16 H1 16/17 H1 15/16 H2 15/16 H1 16/17 +7.5% 2 (3.0)% (7.5)% (5.8)% H1 15/16 H2 15/16 H1 16/17 1. Excluding UK ladder settlement and India accounting changes. H1 15/16 restated for H1 16/17 foreign exchange rates 2. Reported organic EBIT includes a benefit from lower depreciation and amortisation charges following the treatment of the Netherlands as an asset held for sale 25
Adjusted operating profit stabilising H1 16/17 ( m) H1 15/16 ( m) Reported growth (%) Adjusted operating profit 1 2,283 2,281 0.1 Adjusted net financing costs (1,013) (764) Adjusted tax expense (277) (417) Non controlling interests (134) (172) Adjusted earnings 1 859 928 (Loss)/profit for the period (5,003) (2,344) n/a Weighted average number of shares 2 (m) 27,912 26,529 Financing costs higher: Lower capitalised interest FX losses on intragroup funding Underlying broadly stable Share count: 26,587m excl. dilution from mandatory convertible bonds Net impairment of 5.0bn in India Adjusted earnings per share 1 3.08c 3.50c (12.0) 1. Reported excluding the impact of restructuring costs, significant one-off items and amortisation of acquired intangible customer bases and brand intangible assets 2. Weighted average number of shares includes a dilution of 1,325 million shares following the issue of 2.8 billion of mandatory convertible bonds in February 2016 26
Europe service revenue continues to accelerate Q2 16/17 organic service revenue (%) Q2 15/16 Q3 15/16 Q4 15/16 2 Q1 16/17 Q2 16/17 16.5 15.7 15.1 Europe (1.0) (0.6) (0.3) 0.3 1.0 AMAP 6.7 6.5 7.4 7.7 7.1 Group 1.2 1.4 1.8 2.2 2.4 5.4 4.1 3.6 3.5 3.1 2.6 2.2 2.2 0.5 1 (2.1) (3.3) Ghana Turkey Egypt India Vodacom Romania Spain Germany Greece Italy Portugal Ireland UK NL 10 out of 13 European markets are in positive growth; Europe service revenue improved 2.0pp YoY Continued good momentum in AMAP, pressures in India 1. Excluding impact of handset financing 2. Underlying service revenue excludes leap year benefit and accounting changes 27
All growth engines contributing H1 16/17 service revenue growth contribution (pp) 1.1 (excl. roaming) Data 1.8 0.6 0.8 (0.8) 2.3 0.1 (excl. roaming) (0.1) European consumer mobile AMAP consumer mobile Consumer fixed line Enterprise Carrier, wholesale and other 1 H1 16/17 Europe consumer mobile: largest driver of improvement in growth (H1 15/16-1.0pp) AMAP consumer mobile; 0.6pp from Turkey, 0.4pp from South Africa and 0.4pp from India Low margin carrier voice headwinds set to reduce 1. Other includes mobile and fixed wholesale, common functions and eliminations 28
Cost base stable despite strong commercial momentum H1 16/17 H1 15/16 Improvement Mobile contract net adds (000s) 2,840 2,740 +3.6% EU fixed broadband net adds (000s) 525 395 +33% EU contract churn (Q2) 15.5% 15.7% 0.2pp ( bn) 7.6 0.3 0.0 (0.1) 0.1 7.9 Organic H1 15/16 EBITDA Gross margin Customer costs Technology costs Support costs Organic H1 16/17 EBITDA 29
Fit for growth: H1 cost drivers H1 16/17 cost base (excl. interconnect) Direct costs Customer costs Technology costs Support costs Wholesale access fees up due to off-net broadband base, +0.5m YoY Content cost up 85m in Spain and Portugal European A&R 17.2% of SR, down 0.3pp YoY Focus on branded channels Increasing online penetration (My Vodafone App 39%) Mobile sites +5% YoY due to Project Spring, +2% YTD Common functions: Zero based budgeting 3.7bn +2% 7.0bn 0% 3.5bn +3% 0.7bn -14% Total 15.1bn Other 0.2bn 30
Fit for growth: phase two targets identified Total savings OpCo driven initiatives Group led initiatives Phase 1 delivery Procurement Shared services Sales & distribution Phase 2 focus Procurement: Targeting 80% of global spend Tear down model Shared services: Digital solutions Insourcing application development Sales & distribution: Customer care through digital support Optimisation of indirect channels Networks & IT Network & IT: Transfer 65% of IT applications to the Cloud 40% reduction in data centre costs ZBB 2016-17 2018-20 ZBB: Implemented across support functions globally 31
Gap vs. top quartile Small improvement Large improvement Fit for growth: benchmarking our opex performance Efficiency improvement vs. mobile peers 1 South Africa Gap closing vs. top quartile Southern Europe most efficient Greece Spain AMAP improving despite higher inflation pressures UK Turkey Italy Targets set for further improvement in all markets; focus on Northern Europe Ireland Germany Portugal Higher cost saving opportunity vs. top quartile Lower cost saving opportunity vs. top quartile 1. A.T. Kearney Global Competitive Benchmarking for Telecoms 2016, 3 year period 32
Broad based margin improvement H1 organic EBITDA margin movement YoY (pp) Europe AMAP 3.6 2.6 1.3 1.2 1.1 4.5 2.4 1.7 1.0 (0.1) (0.7) (1.5) (0.9) Greece Italy Germany Spain Ireland NL UK¹ Portugal Ghana Egypt Turkey SA India YoY organic change in A&R and opex (%) 1. Excludes the benefit of the UK ladder settlement and FX adjustments 33
Delivering on our EBITDA margin targets EBITDA margin movement YoY (pp) AMAP 1.1 0.7 0.4 Multi-year margin targets Countries growing EBITDA > service revenue FY 12-15 10 countries Group Europe H1 14/15 H1 15/16 H1 16/17 Out of 26 countries FY 15/16 H1 16/17 15 countries 19 countries 34
Capital additions normalising Mix of capital additions 5.1bn (18.3% of revenue) Coverage Capacity / speed Coverage Capacity / speed Fixed IT 4.0bn (14.7% of revenue) H1 15/16 H1 16/17 Europe AMAP Capital intensity outlook (% of revenue): mid-teens Mobile Europe: Continue to deploy 4G+; prepare to co-lead in 5G >95% urban sites with fibre backhaul AMAP: Accelerate 4G expansion Fixed Footprint expansion (Southern EU) DOCSIS 3.1 IT Converged modern billing & CRM systems Cross channel customer journeys 35
India: circle by circle investment strategy Leadership 12 circles 9% 11% 4% 4% 16% 0.4% 6% Challenger 5 circles Market position #2 or #3 RMS: 16%, Q1 gain +0.5pp QoQ Multiple data carriers Market position #1 or #2 80% 96% 80% 93% RMS : 27%, Q1 gain +0.8pp QoQ Voice: 900/1800 MHz Data: 3G/4G with 3-5 carriers, scope to refarm 900 MHz Other 5 circles Market position #3 - #5 RMS: 11%, Q1 gain 0.0pp QoQ ICR agreements FY 15/16 Revenue FY 15/16 EBITDA FY 15/16 Capex Spectrum acquired since 2010 36
Free cash flow reflects final Project Spring payments H1 16/17 ( m) H1 15/16 ( m) EBITDA 7,906 8,039 Capital additions (3,973) (5,149) Capital creditors (1,476) (809) Working capital (1,463) (1,676) Capital creditor unwind, reflecting timing of Project Spring payments Underlying effective tax rate 27.5%, medium-term rate is mid-20s Net interest (363) (504) Taxation (534) (597) Dividends received 1 129 - Dividends to non-controlling interests (274) (182) Other 2 63 122 Free cash flow 15 (756) 1. Principally relating to Indus Towers 2. Relates to cash movements on share based payments and disposal of capital assets 37
Leverage Net debt ( bn) 36.9 0.2 2.4 1.2 40.7 c.3.5 1.3 (2.2) ( 4.0) 39-40 Mar 2016 Spectrum Final 15/16 dividend 1 2 Other Sep 2016 Spectrum and other 3 H1 dividend VZ loan notes Guidance FCF Mar 2017 H1 net debt excludes 2.8bn mandatory convertible bonds and $5.0bn Verizon loan notes H2 includes: India and Egypt spectrum purchases First tranche of VZ loan notes ($2.5bn) Net cash inflow of c. 0.5bn from the expected Netherlands JV dividend distribution Gross cost of debt (%) Average life of bond debt H1 16/17 H1 15/16 3.7 3.9 9.4yrs 7.0yrs Net debt/ebitda 2.6x 2.5x 1. Spectrum purchases in Germany 2. Other includes ( 15m) free cash flow, 61m acquisitions and disposals, 333m FX and 142m restructuring costs 3. Spectrum includes 2.7bn of Indian spectrum; other includes restructuring and cash inflow from expected Netherlands JV completion 38
Guidance range narrowed, consistent dividend growth FY 16/17 EBITDA guidance 15.7bn - 16.2bn 15.7bn - 16.1bn 15.3bn 3-6% 3-6% FY 15/16 EBITDA (rebased) 1 Guidance FY 16/17 EBITDA at May 2016 Performance in H1 16/17 ahead of expectations Expect revenue and profitability trends to continue at a similar underlying pace in the second half Guidance for FY 16/17 2,3 : Organic EBITDA growth narrowed to 15.7bn to 16.1bn Free cash flow at least 4.0bn Interim dividend per share of 4.74 eurocent, up 1.9% 4 Guidance FY 16/17 EBITDA at Nov 2016 1. Rebased for FY 16/17 FX guidance rates 2. We have based guidance for the financial year ending 31 March 2017 on our current assessment of the global macroeconomic outlook and assume foreign exchange rates of 1:INR 76.4, 1:ZAR 16.5, 1: 0.79, 1:TRY 3.2 and 1:EGP 9.8. Guidance excludes the impact of licence and spectrum payments, material one-off tax-related payments, restructuring costs, and any fundamental structural change to the Eurozone. It also assumes no material change to the current structure of the Group, and has not been adjusted for the potential de-consolidation of Vodafone Netherlands following the announced intention to create a 50:50 Joint Venture with Ziggo. 3. We have also excluded from guidance an expected one-off impact on EBITDA arising from foreign exchange losses on foreign currency denominated liabilities of Vodafone Egypt following the devaluation of the Egyptian pound; given ongoing exchange rate volatility, it is not yet possible to quantify this impact, which has no impact on Group free cash flow. 4. Interim dividend for 2015/16 has been restated to eurocents using 31 March 2016 rate of 1 = 1.2647 39
Summary Extending differentiation: NPS leadership maintained through substantial network investments and CARE programme Sustained commercial momentum: good performances in Germany, Italy, Spain and South Africa, well prepared for competition in India, focused on improving the UK H1 modestly ahead of expectations, increasing competition in India Driving operating leverage: organic EBITDA growing faster than revenue Returns to shareholders: euro dividend per share +1.9% 40
Q&A 41
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Appendix 43
Dividend policy under euro reporting Denomination Currency of payment Exchange rate Policy Dividend policy Average of the five business days in the week prior to payment Intend to grow full year dividends per share in annually Calculation for FY16/17 interim dividend FY 15/16 interim 3.68 pence x Year end FX : 1.2647 Rebased FY 15/16 interim = 4.65 cents YoY growth 1.9% FY 16/17 interim = 4.74 cents Key interim dividend dates: 24 November 2016 Ex-dividend date 25 November 2016 Record date 3 February 2017 Payment date 44
European homes reached with NGN 1 Wholesale NGN Own NGN (millions) 10 5 25 14 6 10 0.2 4 2.3 Germany Italy Spain UK Portugal Population coverage 60% 35% 67% 87% 50% 1. Excludes several smaller markets (Greece, Ireland, Netherlands) 45
Customer experience and commercial KPIs Europe AMAP Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 4G customers (m) 24.3 28.1 33.4 36.0 39.3 Contract churn (%) 15.7% 16.7% 16.1% 15.3% 15.5% 4G % outdoor population coverage 80% 84% 87% 89% 90% % of data sessions >3Mbps 88% 90% 91% 91% 90% % of dropped calls 0.60% 0.50% 0.46% 0.47% 0.47% 4G customers (m) 5.8 6.7 13.4 16.5 19.6 Contract churn (%) 19.4% 20.9% 20.5% 18.2% 18.0% 3G/4G outdoor coverage (excluding India) 83% 83% 85% 85% 85% % of dropped calls 0.99% 0.93% 0.86% 0.70% 1 0.68% Call setup success 99.4% 99.4% 99.3% 99.5% 99.5% Call setup success 99.8% 99.8% 99.9% 99.9% 99.9% 1. Improvement partially reflects calculation methodology change 46
Other key markets Market Organic Q2 service revenue growth (%) Reported H1 EBITDA ( m) Reported H1 EBITDA margin (%) Mobile customers Net adds (000) Closing customers (000) Fixed broadband customers Net adds (000) Closing customers (000) Netherlands Portugal Greece Ireland Romania Turkey Egypt (3.3%) 316 34.8% (68) 4,963 20 143 2.2% 172 34.8% 43 4,831 27 493 2.6% 130 30.1% 79 5,869 15 586 0.5% N/A 1 N/A 1 (2) 1,965 10 257 3.6% N/A 1 N/A 1 195 8,683 3 61 15.7% 335 20.8% 206 22,581 41 465 15.1% 356 44.7% 623 39,666 9 240 1. Number not disclosed 47
Service revenue bridge ( m) 25,601 665 45 130 149 24,805 (1,170) (188) (386) (41) H1 15/16 reported service revenue FX One-off 1 items In-bundle Out of bundle Incoming MTR Fixed line and carrier Other H1 16/17 reported service revenue 1. Excludes UK fixed ladder settlement and a reporting change of certain dealer commissions in India 48
Voice MTR impact H1 16/17 H1 15/16 m pp m pp Europe Service revenue (29) (0.2) (36) (0.2) EBITDA (7) - AMAP Service revenue (12) (0.2) (106) (1.4) EBITDA (5) (29) Group Service revenue (41) (0.2) (142) (0.6) EBITDA (12) (29) 49
Profit H1 16/17 ( m) H1 15/16 ( m) Adjusted operating profit 1 2,283 2,281 Net financing costs (685) (964) Taxation 384 (2,493) Customer & brand amortisation 2 (515) (724) Restructuring costs (37) (156) Impairment loss (6,375) - Other (58) (288) Profit for the year (5,003) (2,344) Non controlling interests (126) (159) (Loss)/Profit attributable to owners of parent (5,129) (2,503) 1. Reported excluding the impact of restructuring costs, significant one-off items and amortisation of acquired intangible customer bases and brand intangible assets 2. Customer amortisation relate primarily to Italy (H1 16/17 170m, H1 15/16 234m), KDG (H1 16/17 165m, H1 15/16 242m) and Ono (H1 16/17 114m, H1 15/16 150m) 50
Adjusted EPS reconciliation H1 16/17 ( m) H1 15/16 ( m) (Loss)/Profit attributable to owners of parent (5,129) (2,503) Reported growth (%) Impairment 6,375 - Taxation (661) 2,076 Investment income and financing costs (328) 200 Customer and brand amortisation 515 724 Non controlling interests (8) (13) Restructuring costs 37 156 Other 58 288 Adjusted profit for the year 859 928 Weighted average shares (m) 1 27,912 26,529 Adjusted EPS ( cents) 3.08 3.50 (12.0) 1. Weighted average number of shares outstanding includes a dilution of 1,325 million shares (2015: nil) following the issue of 2.9 billion of mandatory convertible bonds in February 2016. 51
Taxation H1 16/17 ( m) H1 15/16 ( m) Income tax 384 (2,493) Deferred tax assets - India (1,375) - Deferred tax assets - Luxembourg 588 2,015 Amortisation of deferred tax assets 230 359 Other (104) (298) Adjusted tax expense (277) (417) Adjusted effective tax rate 1 27.5% 30.5% 1. Lower rate in the current period is primarily due to the ongoing impact of the re-organisation of our Indian business which took place during the year ended 31 March 2016 52
Financing costs H1 16/17 ( m) H1 15/16 ( m) Net financing costs (685) (964) Mark to market of the Mandatory Convertible Bond (89) 0 FX 1 (239) 200 Adjusted net financing costs (1,013) (764) Other mark to market of derivative positions 84 118 Interest expense arising on settlement of outstanding tax issues 31 21 FX impact on intragroup lending 116 (19) Capitalised interest 2 (1) (142) Other (59) (4) Underlying net financing costs (842) (790) Interest received (228) (182) Underlying gross financing costs (a) (1,070) (972) Average gross debt (b) (58,178) (49,344) Cost of debt 3 3.7% 3.9% 1. Comprises foreign exchange rate differences reflected in the income statement in relation to certain intercompany balances 2. Interest capitalised on India spectrum, until brought into use 3. Cost of debt: ((a/b) x 2) x 100 53
Gross and net debt H1 17 bn H1 16 bn Average gross debt 58.2 49.3 Average cash and short term investments (19.2) (12.6) Average net debt 39.0 36.7 Average life of bond debt 9.4 years 7.0 years 54
Currency sensitivity Currency H1 16/17 closing net debt ( bn) Currency H1 16/17 closing EBITDA ( bn) EUR 28.7 ZAR 1.8 GBP (0.7) INR 4.0 Other 6.9 Total 40.7 EUR 4.2 ZAR 0.8 GBP 0.7 INR 0.9 Other 1.3 Total 7.9 A 1% change in Impacts EBITDA by approx. ( m) Impacts FCF by approx. ( m) INR: 20 5 ZAR: 15 5 GBP: 20 10 TRY: 5 2 EGP: 5 2 55
Forward-looking statements This presentation, along with any oral statements made in connection therewith, contains forwardlooking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the Group s financial condition, results of operations and businesses and certain of the Group s plans and objectives. In particular, such forward-looking statements include, but are not limited to, statements with respect to: expectations regarding the Group s financial condition or results of operations; expectations for the Group s future performance generally, including growth and capital expenditure; expectations regarding the Group s operating environment and market conditions and trends, including customer usage, competitive position and macroeconomic pressures, spectrum auctions and awards, price trends and opportunities in specific geographic markets; intentions and expectations regarding the development, launch and expansion of products, services and technologies, either introduced by Vodafone or by Vodafone in conjunction with third parties or by third parties independently including the rollout of TV in the United Kingdom; expectations regarding free cash flow and foreign exchange rate movements and tax rates; expectations regarding the integration or performance of current and future investments, associates, joint ventures, non-controlled interests and new acquired businesses; expectations regarding MTR rates in the jurisdictions in which Vodafone operates; expectations regarding Vodafone India, the outcome and impact of regulatory and legal proceedings involving Vodafone and of scheduled or potential legislative and regulatory changes, including approvals, reviews and consultations. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as will, anticipates, aims, could, may, should, expects, believes, intends, plans, prepares or targets (including in their negative form or other variations). By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the following: general economic and political conditions of the jurisdictions in which the Group operates and changes to the associated legal, regulatory and tax environments; increased competition; levels of investment in network capacity and the Group s ability to deploy new technologies, products and services; rapid changes to existing products and services and the inability of new products and services to perform in accordance with expectations; the ability of the Group to integrate new technologies, products and services with existing networks, technologies, products and services; the Group s ability to generate and grow revenue; a lower than expected impact of new or existing products, services or technologies on the Group s future revenue, cost structure and capital expenditure outlands; slower than expected customer growth, reduced customer retention, reductions or changes in customer spending and increased pricing pressure; the Group s ability to expand its spectrum position, win 3G and 4G allocations and realise expected synergies and benefits associated with 3G and 4G; the Group s ability to secure the timely delivery of high quality products from suppliers; loss of suppliers, disruption of supply chains and greater than anticipated prices of new mobile handsets; changes in the costs to the group of, or the rates the Group may charge for, terminations and roaming minutes, the impact of a failure or significant interruption to the Group s telecommunications, networks, IT systems or data protection systems; the Group s ability to realise expected benefits from acquisitions, partnerships, joint ventures, franchises, brand licences, platform sharing or other arrangements with third parties; acquisitions and divestments of Group businesses and assets and the pursuit of new, unexpected strategic opportunities; the Group s ability to integrate acquired business or assets; the extent of any future write downs or impairment charges on the Group s assets, or restructuring charges incurred as a result of an acquisition or disposition; a developments in the Group s financial condition, earnings and distributable funds and other factors that the Board takes into account in determining the level of dividends; the Group s ability to satisfy working capital requirements; changes in foreign exchange rates; changes in the regulatory framework in which the Group operates; the impact of legal or other proceedings against the Group or other companies in the communications industry and changes in statutory tax rates and profit mix. Furthermore, a review of the reasons why actual results and developments may differ materially from the expectations disclosed or implied within forward-looking statements can be found under Forwardlooking statements and Principal risk factors and uncertainties in the Group s annual report for the financial year ended 31 March 2016. The annual report can be found on the Group s website (vodafone.com/investor). All subsequent written or oral forward-looking statements attributable to the Company or any member of the Group or to any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forwardlooking statements in or made in connection with this presentation will be realised. Subject to compliance with applicable law and regulations, Vodafone does not intend to update these forwardlooking statements and does not undertake any obligation to do so. 56
More information Visit our website for more information 2017 upcoming dates Q3 results 2 February Interim dividend paid 3 February Prelim results 16 May www.vodafone.com/investor Contact us ir@vodafone.co.uk +44 (0) 7919 990 230 For definitions of terms please see www.vodafone.com/content/index/investors/glossary 57