Vodafone

Vodafone Group Plc Annual Report 2017

Vodafone Group Plc
Annual Report 2017

Connecting everybody to
live a better today and build a better tomorrow.

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Creating value for society, delivering results for shareholders

Vodafone’s purpose is to connect everybody to live a better today and build a better tomorrow. We believe that by pursuing this goal in a sustainable and responsible way we will create long-term value for society and, as a result, for our shareholders.

Creating value for shareholders...

Group total revenue

€47.6bn
-4.4%

down 4.4% to €47.6 billion; full year organic service revenue grew 1.9%*

Organic adjusted EBITDA

€14.1bn
+5.8%

up 5.8%* to €14.1 billion; H2 adjusted EBITDA up 6.3%*

Dividend per
share

10.03c
+2.0%

up 2.0%, giving total dividends per share of 14.77 eurocents

All amounts marked with an “*” represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. Organic growth is an alternative performance measure. See “Alternative performance measures” on page 205 of the Annual Report 2017 for further details and reconciliations to the respective closest equivalent GAAP measure.

...and benefits for customers and society

4G Customers

75m

We cover 92% of Europe with 4G (2016: 87%). We now have 75 million 4G customers, including India and our joint ventures.

Next generation network

36m

We expanded our owned NGN footprint to 36 million homes, supported by the formation of the VodafoneZiggo JV in the Netherlands, and we are now able to market NGN services to 96 million homes across Europe.

CXX Programme

CARE

With our CXX programme CARE we aim to deliver an outstanding and differentiated experience for our customers, building on the significantly improved network quality delivered by Project Spring.

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At Vodafone our purpose is to connect everybody to live a better today and build a better tomorrow.

We do this by investing in the digital infrastructure of the future, delivering a quality service that allows individuals and businesses to connect confidently anywhere and at any time. Our services enhance the quality of peoples’ lives, providing benefits to society as well as financial rewards for our shareholders. We’ve created four core programmes to make sure this happens.

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Network Leadership

Our goal is to create a “Gigabit Society” where everyone benefits from ubiquitous and reliable high-speed connectivity.

ENEL – Breaking the gigabit barrier

In 2016, we have teamed up with major electricity company, ENEL, to establish a leading fibre provider in Italy. We will deliver gigabit fibre to 270 cities reaching 9.5m households by 2022.

Customer eXperience eXcellence

We deliver a differentiated customer experience through CARE
Connectivity that is reliable and secure
Always excellent value
Rewarding loyalty
Easy access to customer support

Raising the bar in customer service

Supporting our transition to be a customer champion in the UK, we will create 2,100 new customer service roles to deliver an outstanding level of service and support.

Fit for growth

We are constantly exploring new ways of using our resources more efficiently because it makes sound environmental and economic sense.

Improving the energy efficiency of our networks

By incorporating energy efficient technology when upgrading our networks, we have reduced our own greenhouse gas emissions by 64% per petabyte of data carried by our mobile network since 2015 and reduced costs.

People and Culture

We aim to create a diverse and inclusive working environment that reflects our customers and our global footprint.

Reconnecting women with their careers

To attract talented women who have left the workplace but would like to return, we have set up 'ReConnect', a unique programme targeting 1,000 ReConnect recruits within three years, across 26 countries.

Building a converged communications leader.

Vodafone’s transformation into a leading converged operator in our developed markets made further progress this year, while rising smartphone penetration and data services adoption drove growth in our emerging markets. Supported by our strategic differentiators –network leadership, customer experience excellence, and outstanding people – and with improved cost efficiency, I am pleased to report that the Group’s commercial and financial performance has further improved, although on a reported basis this was masked by currency headwinds.

We measure our success, through our strategic growth engines.

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Data

Providing the best mobile data experience

We aim to provide a leading mobile data experience in all of our markets, in order to capitalise on the huge demand for mobile internet connectivity from both consumer and enterprise customers, and to differentiate our service from lower quality discount providers.

Group data traffic growth in 2017

%
Year Million
Europe 57
AMAP 78
Group 65
Figures exclude India and the Netherlands.
224m

of our customers use data (including India, JVs and associates), 43% of the total base

‘More-for-more’ initiatives to drive usage and revenue

Over the course of last year we introduced a series of more-for-more offers, which typically offer more data in return for a higher monthly fee. As an example, in Germany, we recently launched new plans offering more data and a data rollover facility, providing customers with the ability to carry over their unused data allowance from the prior month. In Vodacom, our innovative “microbundling” strategy allows customers to purchase data in affordable hourly, daily or weekly bundles. These offers typically mean customers generate a lower revenue per unit of data, but stabilise or increase average revenue per user.

Convergence

Combining fixed and mobile

Customers increasingly want to use converged services – i.e. bundle fixed and mobile services together under a single contract – to easily share content between their mobile phone, tablet, laptop or TV. We aim to increase our revenue market share and profitability in fixed communications.

Spain - lowering churn through convergence

% of customers that leave us based on the number of products(mobile, landline, broadband and TV) they buy
Year Million
Mobile only 27
Three products 13
Four products 6
24%

of our service revenue comes from fixed services

Vodafone Spain – leading our transition to converged services

To date, the fastest take up of converged services – bundles of fixed, mobile or TV – has been in Spain. During the year, we added nearly 250,000 new converged customers taking us to 2.3m in total. We have made two important steps to drive demand during the year. First, we added to the existing extensive range of TV content including football, Netflix, and over 120 TV channels, including launching HBO Spain. Second, we further expanded the number of homes passed with high-speed fibre to nearly 19 million,representing 65% of households, by both deploying more fibre and by securing new wholesale arrangements.

Enterprise

Leading in total communications

Seamlessly integrated connectivity has become a central part of running a business today. Businesses are seeking secure and reliable mobile and fixed solutions to support efficient and effective operations. We are building a comprehensive total communications portfolio, rooted in our core strength in mobility and want to maintain our strong mobile market share, earned from our trusted brand and increase market shared in our fixed enterprise services.

Enterprise service revenue growth

%
Year Million
2015 0.0¹
2016 1.7
2017 2.3
Note:
1 as reported in FY15 including Vodafone India.
30%

of our service revenue is from enterprise customers

Providing network connected, global cloud services

Enterprise customers are moving data and applications to the cloud to become smarter and more agile, reduce costs and optimise performance. By combining our strengths in fixed connectivity with our Cloud & Hosting portfolio, we are well placed to meet this demand and can provide simple, secure IT solutions. During the year, we have expanded our geographic presence and our cloud services are now live in seven markets across Europe, Africa, Asia and the USA. Combined with our network of partner facilities, we can serve businesses on a global scale and offer a consistent cloud experience across 28 countries. During the year, revenue from Cloud & Hosting services grew 15%.

Everything we do is supported by our responsible approach to the communities in which we operate.

Our businesses play an integral role in the daily lives of our customers and are a vital part of the national infrastructure upon which the economies in which we operate depend on. We take this responsibility very seriously as reflected in our sustainable business strategy, robust risk management and strong governance.

Sustainable
business

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Observing responsible behaviour in everything we do

Our sustainable business strategy is founded on our commitment to responsible behaviour in everything we do. Our intention is to work towards three significant global transformation goals – women's empowerment, energy innovation and youth skills and jobs – to deliver meaningful socioeconomic benefits for our customers and wider society.

To find out more about our sustainable business read our report.

Risk Management

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Clear risk management to enable informed decision making

We have a global framework for identifying and managing risk within our defined tolerance, both at an operational and strategic level. The framework has been designed to provide the Executive Committee and Board with a clear line of sight over risk and to enable informed decision making.

Download the strategic report here.

Governance

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Creating the right culture through our governance framework

Good governance flows throughout our business and a commitment to operating with integrity is central to the Group’s culture. Our culture has evolved over time reflecting our growth, changing consumer behaviours and expectations, shifts in regulatory and legal requirements as well as changing attitudes towards the role of large corporations in society.

Download the governance section here.

Key performance indicators

Ensuring we stay on track

Core programmes

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Network leadership

4G Europe coverage1
%

We achieved our goal of over 90% coverage across Europe, reaching 92% including VodafoneZiggo, this year.

Year Million
2015 72
2016 87
2017 92
Page 1 Created with Sketch.

Customer eXperience eXcellence

Customer net promoter score1,2

Our goal is to be NPS leader in all our markets. We continued to make good progress this year, but further improvements are needed, particularly in the UK.

Year Million
2015 11
2016 13
2017 19
Page 1 Created with Sketch.

People and Culture

Diversity: Women in senior management1,2
%

Diversity increases the range and breadth of skills in our business and increased female representation is one measure of this. We aim to increase this proportion every year.

Year Million
2015 23
2016 24
2017 25
Page 1 Created with Sketch.

Fit for Growth

Grow adjusted EBITDA faster than service revenue, improving margins
out of 22 markets

Our target is to achieve this in all 22 of our controlled operations (excluding India, JVs and associates).

Year Million
2015 10
2016 13
2017 15

Strategic growth levers

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Data

4G customers1,2
million

Our expanded 4G customer base has increased data usage by 65%. In Europe the average smartphone user now consumes 1.7 GB of data each month.

Year Million
2015 20.7
2016 46.8
2017 74.7

Enterprise

Fixed as a percentage of enterprise service revenue
%

Our core European mobile enterprise services continue to face challenging market conditions. Therefore, we are seeking to diversify into fixed and related enterprise services to offset these pressures.

Year Million
2015 26
2016 28
2017 29

Convergence

Europe owned NGN coverage1
million homes passed

We aim to continually increase our NGN reach and have the largest NGN footprint in Europe with 36 million homes passed by our own cable and fibre and a further 60 million via wholesale access and partnerships.

Year Million
2015 25
2016 29
2017 36

Convergence

Fixed broadband customers1,2
million

We aim to grow our fixed broadband customer base continuously. During the year, we added 1.5 million new customers, taking the total base to 17.9 million (including 3.2 million from VodafoneZiggo). Within this we added 0.7 million converged customers.

Year Million
2015 N/A 12
2016 3.1 13.4
2017 3.8 17.9
  Of which, consumer converged customers

Financial performance

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Organic service revenue growth
%

Our goal is to continue to grow our service revenue. We met this goal again this year.

Year Million
2015 -3.2
2016   1.1
2017   1.9
Organic adjusted EBITDA growth
€ billion

Growth in adjusted EBITDA supports our free cash flow which helps fund investment and shareholder returns. Our adjusted EBITDA grew organically by 5.8% this year. On a guidance basis, which includes India, it grew 3.4%, consistent with our guidance of 3% to 6% organic growth.

Year Million
2015 -8.3
2016   2.3
2017   5.8
Free cash flow
€ billion

Cash generation is key to delivering strong shareholder returns. We delivered €4.1 billion of free cash flow in 2017. On a guidance basis, which includes India, our free cash flow was €4.3 billion, consistent with our free cash flow guidance of at least €4.0 billion.

Year Million
2015 1.7
2016 1.3
2017 4.1 4.3
Dividend per share
eurocents

This year we increased the dividend per share by 2%. In line with our reporting currency our dividends are now based in Euros.

Year Million
2015 14.19
2016 14.48
2017 14.77
  • Note:
  • 1 Includes Netherlands.
  • 2 Includes India.

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Vodafone Annual Report 2017

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