20-F 1 d528606d20f.htm 20-F 20-F
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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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LOGO

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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  Vodafone Group Plc

  Annual Report 2013

   
        
        
        

 

 

 

This year’s report:

We’ve made some big changes to this year’s report to give readers

a clearer picture of how we’re doing and what our plans are.

On pages 90 to 97, you can see we’ve combined our financial statements with a commentary

explaining the main moving parts.

Elsewhere, we’ve expanded our KPI reporting, given more information on directors’ pay,

and embraced a number of new reporting requirements a year early.

We hope you find it useful and informative.

 

 

 Overview#

 

2    Financial highlights

 

4    Maximising our reach

 

6    An eventful year

 

8    Adapting in a dynamic market

 

10    Simple, but thorough

 

12    Chairman’s statement

 

     

 

 Business review#

 

14    Chief Executive’s review

 

18    Key performance indicators

 

20    Industry trends

 

22    How we do business

 

24    Strategy   
  

 

   24    Consumer 2015
  

 

   28    Enterprise 2015
  

 

   30    Network 2015
  

 

   32    Operations 2015

 

34    Our people

 

36    Sustainable business

 

38    Vodafone Foundation

 

 

 Additional information

 

166    Shareholder information#

 

174    History and development#

 

175    Regulation#

 

179    Non-GAAP information#

 

182    Form 20-F cross reference guide

 

185    Forward-looking statements

 

187    Definition of terms

 

189    Selected financial data

 

Exhibit 2.3

 

Exhibit 4.28

 

Exhibit 12

 

Exhibit 13

 

Exhibit 15.1

 

Exhibit 15.2

 

 

# These sections and pages 91, 93, 95 and 97 make up the directors’ report.
 

LOGO

 


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  Vodafone Group Plc

  Annual Report 2013

 
   

 

LOGO

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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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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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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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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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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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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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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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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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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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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Chairman’s statement

 

 

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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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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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Chief Executive’s review

 

 

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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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£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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  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.

 

 

Verizon Wireless

VZW continued to trade very well, launching successful new price plans and making further market share gains. Organic service revenue was up 8.1%* and adjusted EBITDA was up 13.6%*. Free cash flow amounted to US$13.2 billion (£8.4 billion), and net debt at 31 March 2013 was US$6.2 billion (£4.1 billion). Our share of VZW’s profits for the year amounted to £6.4 billion, up 30.5%* year-on-year.

Vodafone 2015

While the macroeconomic and regulatory environment in Europe presents significant short-term challenges, we see a number of positive developments. We expect smartphone adoption to continue to grow in all markets over the next three years, with mobile applications and low cost smartphone availability increasing in mature and emerging markets alike.

With the broad deployment of high speed data networks, both mobile and fixed, we expect customers’ appetite for data to increase significantly. At the same time, the evolution of network and IT platforms should enable lower cost and more standardised approaches as we further integrate commercial and technology planning.

As a result, we believe that the long-term prospects for the mobile market are highly attractive for those that make scale, standardisation and the customer data experience fundamental to how they operate. Vodafone 2015 is our strategy to maximise this opportunity.

Consumer 2015

We are adopting 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 have launched new plans across much of our footprint, branded Vodafone Red in most markets, which incorporate unlimited voice and SMS, and generous data allowances.

As a result, we have radically simplified pricing, giving clear visibility of the cost of ownership and, enabling simplification of IT and billing. We are progressively enhancing the value proposition through the introduction of a number of additional features, including improved access to technical support,

attractive roaming packages, shared data plans, early handset upgrades, storage and back-up in the cloud, and device security, to increase the breadth of service and support ARPU over time.

Already, we have 4.1 million customers on Vodafone Red plans3 across 14 markets. The customer response has been very positive, with strong net promoter scores. Data usage on Vodafone Red plans is much higher, as is the average return on our commercial investment. As expected, we have seen some ARPU dilution, but at a lower level than planned. We aim to have ten million customers on Vodafone Red plans by March 2014.

We also see an increasing move towards residential unified communications services in some of our European markets. We expect this trend to grow, with cable operators offering MVNO services, and incumbent fixed line providers combining their domestic broadband services with mobile and TV plans. Our goal is to offer unified communications services in our major European markets, accessing next generation fixed line infrastructure through a combination of negotiated wholesale terms, deployment of our own fibre and, potentially, acquisitions. A clear regulatory framework with regard to accessing incumbent fibre infrastructure will be key.

In emerging markets, we aim to build on our success to date to become a clear leader, increasing the value of these markets to the Group through market growth, improving margins, share gains and stronger cash generation. These markets offer very attractive long-term opportunities from sustained GDP growth, the scope for widespread mobile data adoption and the fulfilment of unmet needs such as basic financial services. We aim to maximise these opportunities through superior marketing and distribution, smart data pricing, the development of low-cost smartphones and selective innovation in areas in which we can truly differentiate.

Enterprise 2015

We are strengthening our leading position in enterprise, enhancing our product offering to large and medium-sized businesses and creating a dedicated enterprise operational structure, following the market success of Vodafone Global Enterprise (‘VGE’) and the CWW and TelstraClear acquisitions. Enterprise

now represents 27.3% of Group service revenue and we have over 32 million mobile enterprise customers accounting for around 8% of our total customer base.

VGE, serving our biggest multi-national accounts, will continue to expand its remit, driven by an increasing appetite among customers to consolidate telecoms procurement cross-border and bring mobility into the heart of their business strategies. In unified communications, we continue to develop Vodafone One Net for small- and medium-sized companies, and increasingly provide total communications services to our larger customers through the purchase of CWW. This acquisition will also allow us to develop our product offering in high growth segments, such as cloud and hosting.

In machine-to-machine (‘M2M’), we intend to leverage our new business unit organisation, global technical platform and vertical sector competences to exploit the current wave of adoption of M2M solutions across many industry and service sectors.

Network 2015

Our network strategy continues to focus on supporting higher speed data in both mature and emerging markets, and delivering a consistently excellent data experience to our customers through the widespread deployment of HSPA+, LTE and high capacity backhaul. We expect to continue our consistent level of investment so that Vodafone customers can be assured of a video-standard data service across our footprint in Europe and we can successfully manage the high growth in data volumes anticipated. We aim to extend our 3G footprint at 43.2 Mbps and LTE coverage across our five major European markets to 80% and 40% respectively by March 2015.

To complement our physical infrastructure investment, we are committed to securing the best portfolio of low frequency spectrum to maintain and improve our strong market positions through the improved customer experience this will offer. During the year, we acquired spectrum in the important 800 MHz band in the UK, the Netherlands, Ireland, Romania and in the 1800 MHz band in India, taking our total spectrum investment to £7.9 billion in the last four years.

 


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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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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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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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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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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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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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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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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.

 

Revenue

Group revenue fell by -4.2% to £44.4 billion, with service revenue of £40.9 billion, a decline of -1.9%* on an organic basis. Our performance reflected continued strong demand for data services and good growth in our major emerging markets, offset by regulatory changes, challenging macroeconomic conditions, particularly in Southern Europe, and continued competitive pressures.

In Northern and Central Europe service revenue declined by -0.2%* as growth in Germany and Turkey was offset by increased competition and some macroeconomic pressure in other markets.

In Southern Europe service revenue declined by -11.6%* reflecting severe macroeconomic weakness in our main markets, intense competition and MTR cuts.

In AMAP service revenue increased by 3.9%* with continued growth in all of our markets apart from Australia and New Zealand.

Adjusted EBITDA and profit

Group adjusted EBITDA decreased by -8.3% to £13.3 billion, primarily driven by lower revenue and higher restructuring costs partially offset by operating cost efficiencies.

Adjusted operating profit grew by 3.7%, driven by 31.9% growth in our share of profits of VZW to £6.4 billion, partially offset by lower adjusted EBITDA.

Operating profit decreased by -57.7% to £4.7 billion, primarily due to the gains on the disposal of the Group’s interests in SFR and Polkomtel in the prior year and the higher impairment charges in the current year, partially offset by the gain on acquisition of CWW of £0.5 billion.

An impairment loss of £7.7 billion was recorded in relation to Italy and Spain, primarily driven by adverse performance against previous plans and adverse movements in discount rates.

 

 

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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Revenue increased by 2.7% including a -4.1 percentage point negative impact from foreign exchange rate movements and a 6.8 percentage point positive impact from M&A and other activity. On an organic basis service revenue declined by -0.2%*, driven by challenging macroeconomic conditions in some markets, increased competition and the impact of MTR cuts, partially offset by continued growth in data revenue. Organic growth in Germany and Turkey was more than offset by declines in all other markets.

Adjusted EBITDA declined by -3.7%, including a -4.3 percentage point negative impact from foreign exchange rate movements and a 3.0 percentage point positive impact from M&A and other activity. On an organic basis adjusted EBITDA decreased by -2.4%*, resulting from a reduction in service revenue in most markets, the impact of restructuring costs, and higher customer investment due to the increased penetration of smartphones.

 

      Organic
change
%
    Other 
activity1
pps 
    Foreign
exchange
pps
    Reported
change
%
 
Revenue –
Northern and
Central Europe
            6.8        (4.1     2.7   
Service revenue                                 
Germany      0.5        (0.1     (5.5     (5.1
UK      (4.0     0.3               (3.7
Other Northern and
Central Europe
     2.2        23.1        (6.4     18.9   
Northern and
Central Europe
     (0.2     7.1        (4.1     2.8   
Adjusted EBITDA                                 
Germany      (2.6     0.2        (5.4     (7.8
UK      (6.9     0.3               (6.6
Other Northern and
Central Europe
     1.9        9.8        (6.1     5.6   
Northern and
Central Europe
     (2.4     3.0        (4.3     (3.7
Adjusted operating profit                   
Germany      (7.5     0.3        (5.3     (12.5
UK      (27.7     0.8               (26.9
Other Northern and Central Europe      4.3        (23.9     (4.7     (24.3
Northern and
Central Europe
     (8.1     (5.4     (4.2     (17.7

Note:

1 “Other activity” includes the impact of M&A activity and the revision to intra-group roaming charges from 1 October 2011. Refer to “Organic growth” on page 188 for further detail.

Germany

Service revenue increased by 0.5%*, driven by a 1.3%* increase in mobile service revenue. Growth in enterprise and wholesale revenue, despite intense price competition, was offset by lower prepaid revenue. Data revenue increased by 13.6%* driven by higher penetration of smartphones and an increase in those sold with a data bundle. Vodafone Red, introduced in October 2012, performed in line with expectations and had a positive impact on customer perception. Enterprise revenue grew by 3.0%*, despite the competitive environment.

The roll out of LTE services continued and was available in 81 cities, with population coverage of 61% at 31 March 2013.

Adjusted EBITDA declined by -2.6%*, with a -1.3* percentage point reduction in adjusted EBITDA margin, driven by higher customer and restructuring costs, partially offset by operating cost efficiencies and a one-off benefit from a legal settlement during Q2.

UK

Service revenue declined by -4.0%* driven by the impact of MTR cuts effective from April 2012, intense price competition and macroeconomic weakness, which led to lower out-of-bundle usage. Data revenue grew by 4.2%* driven by higher penetration of smartphones. Vodafone Red plans, launched in September 2012, performed well, with over one million customers at 31 March 2013.

Following the purchase of additional spectrum in February 2013, preparation for LTE roll-out is underway.

The network sharing joint venture between Telefónica UK and Vodafone UK, announced in June 2012, is now operational and the integration of the CWW enterprise businesses into Vodafone UK is proceeding successfully.

Adjusted EBITDA declined by -6.9%*, with a -0.5* percentage point reduction in adjusted EBITDA margin, driven by higher retention activity and the impact of restructuring costs.

Other Northern and Central Europe2

Service revenue increased by 2.2%* as growth in Turkey more than offset declines in the rest of the Other Northern and Central Europe region. Service revenue in Turkey grew by 17.3%*, primarily driven by growth in the contract customer base and an increase in data revenue due to mobile internet and higher smartphone penetration. Revenue also benefited from enterprise growth and the success of commercial initiatives. In the Netherlands service revenue declined by -2.7%* due to more challenging macroeconomic conditions and lower out-of-bundle usage. CWW contributed £1,234 million of revenue since it was acquired on 27 July 2012.

Adjusted EBITDA increased by 1.9%*, with a -0.3* percentage point reduction in the adjusted EBITDA margin, as margin improvement in Turkey, driven by the increase in scale and cost management, were partially offset by declines in most other markets primarily resulting from lower revenue. Turkey reported positive operating free cash flow for the first time this year.

Note:

2 The results of CWW are included within the reported results from the date of acquisition, however, they are excluded from the organic results. Refer to definitions of terms on page 188 for more details.
 
 


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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%                    

 

Revenue decreased by -16.0% including a -5.0 percentage point impact from adverse foreign exchange rate movements. On an organic basis service revenue declined by -11.6%*, driven by the impact of MTR cuts, severe macroeconomic weakness and intense competition, partially offset by growth in data revenue. Revenue declined in all of the major markets in the region.

Adjusted EBITDA declined by -21.5%, including a -4.9 percentage point impact from adverse foreign exchange rate movements. On an organic basis adjusted EBITDA decreased by -16.4%*, resulting from a reduction in service revenue in most markets and the impact of restructuring costs, partially offset by a reduction in operating costs.

 

     

 

Organic
change
%

    Other
activity1
pps
    Foreign
exchange
pps
    Reported
change
%
 
Revenue –
Southern Europe
     (10.8     (0.2     (5.0     (16.0
Service revenue                                 
Italy      (12.8     (0.1     (4.9     (17.8
Spain      (11.5     (0.2     (5.0     (16.7
Other Southern Europe      (8.2     (0.4     (5.1     (13.7
Southern Europe      (11.6     (0.1     (5.0     (16.7
Adjusted EBITDA                                 
Italy      (19.5            (4.6     (24.1
Spain      (15.4     (0.6     (5.0     (21.0
Other Southern Europe      (7.1     (0.4     (5.9     (13.4
Southern Europe      (16.4     (0.2     (4.9     (21.5
Adjusted operating profit                                 
Italy      (28.7     (0.1     (4.2     (33.0
Spain      (34.3     (0.9     (4.4     (39.6
Other Southern Europe      (10.4     (0.9     (6.0     (17.3
Southern Europe      (27.5     (0.3     (4.5     (32.3

Note:

1 “Other activity” includes the impact of M&A activity and the revision to intra-group roaming charges from 1 October 2011. Refer to “Organic growth” on page 188 for further detail.

Italy

Service revenue declined by -12.8%* driven by the severe macroeconomic weakness and intense competition, as well as the impact of MTR cuts starting from 1 July 2012. Data revenue increased by 4.4%* driven by mobile internet growth and the higher penetration of smartphones, which more than offset the decline in mobile broadband revenue. Vodafone Red plans, branded as “Vodafone Relax” in Italy, continued to perform well and now account for approximately 30% of the contract customer base at 31 March 2013. The majority of contract additions are Vodafone Relax tariffs. Fixed revenue declined by -6.8%* driven by intense competition and a reduction in the

customer base due to the decision to stop consumer acquisitions in areas where margins are impacted by unfavourable regulated wholesale prices.

LTE commercial services were launched in October 2012 and were available in 21 cities at 31 March 2013.

Adjusted EBITDA declined by -19.5%*, with a -4.3* percentage point fall in the adjusted EBITDA margin, driven by the decline in service revenue and an increase in commercial costs, partially offset by operating cost efficiencies such as site sharing agreements and the outsourcing of network maintenance.

Spain

Service revenue declined by -11.5%* driven by continued macroeconomic weakness, high unemployment leading to customers optimising their spend, and a lower customer base following our decision to remove handset subsidies for a period earlier in the year. Competition remains intense with the increased popularity of converged consumer offers in the market. Data revenue grew by 16.5%* driven by the higher penetration of smartphones and an increase in those sold with a data bundle. Vodafone Red, which was launched in Q3, continues to perform well. Fixed revenue declined by -2.9%*, primarily due to intense competition, although new converged fixed/mobile tariffs had a positive impact on fixed broadband customer additions during Q4.

In March 2013 Vodafone Spain signed an agreement with Orange to co-invest in a fibre network in Spain, with the intention to reach six million households and workplaces across 50 cities by September 2017. The combined capital expenditure is expected to reach 1 billion.

Adjusted EBITDA declined by -15.4%*, with a -0.7* percentage point reduction in adjusted EBITDA margin, primarily driven by lower revenue and the impact of restructuring costs offset by commercial and operating cost efficiencies. The adjusted EBITDA margin stabilised in H2, benefiting from lower operating and commercial costs.

Other Southern Europe

Service revenue declined by -8.2%*, driven by declines in Greece and Portugal, which more than offset growth in Albania and Malta. Macroeconomic weakness and intense competition resulted in service revenue declines of -13.4%* and -8.2%* in Greece and Portugal, respectively. Greece and Portugal were also impacted by an MTR cut.

Adjusted EBITDA declined by -7.1%*, with a -0.4* percentage point reduction in adjusted EBITDA margin, primarily driven by lower service revenue, partially offset by operating cost efficiencies.

 


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  Vodafone Group Plc

  Annual Report 2013

   
        
        
        

 

 

Africa, Middle East and Asia Pacific

                                                                                          
     

India

£m

    

Vodacom

£m

    

Other
AMAP

£m

    

Eliminations

£m

   

AMAP

£m

            % change  
                             £m             Organic  
   
Year ended 31 March 2013                                                             
Revenue      4,324         5,206         3,937         (1     13,466         (2.9     4.3   
Service revenue      4,292         4,420         3,634         (1     12,345         (3.2     3.9   
Adjusted EBITDA      1,240         1,891         1,047                4,178         1.5        10.3   
Adjusted operating profit      221         1,196         261                1,678         14.0        26.7   
Adjusted EBITDA margin      28.7%         36.3%         26.6%                 31.0%                    
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%                    

 

Revenue declined by -2.9% including a -8.2 percentage point adverse impact from foreign exchange rate movements, particularly the Indian rupee and the South African rand. On an organic basis service revenue grew by 3.9%* driven by customer and data revenue growth, partially offset by the impact of MTR reductions, competitive and regulatory pressures, and a general weakening in macroeconomic conditions. Growth was led by robust performances in India, Vodacom, Egypt, Ghana and Qatar, offset by service revenue declines in Australia and New Zealand.

Adjusted EBITDA increased by 1.5% after a -9.4 percentage point adverse impact from foreign exchange rate movements. On an organic basis, adjusted EBITDA grew by 10.3%* driven primarily by strong growth in India, Vodacom and Egypt as well as improved contributions from Ghana and Qatar, offset in part by declines in Australia and New Zealand.

      Organic
change
%
   

 

Other
activity1
pps

    Foreign
exchange
pps
    Reported
change
%
 
Revenue – AMAP      4.3        1.0        (8.2     (2.9
Service revenue                                 
India      10.7        3.8        (12.7     1.8   
Vodacom      3.0        (3.2     (9.7     (9.9
Other AMAP      (2.1     3.8        (1.5     0.2   
AMAP      3.9        1.1        (8.2     (3.2
Adjusted EBITDA                                 
India      24.0        (0.1     (13.4     10.5   
Vodacom      10.3               (12.3     (2.0
Other AMAP      (2.6     2.0        (0.9     (1.5
AMAP      10.3        0.6        (9.4     1.5   
Adjusted operating profit                                 
India      291.1        (3.4     (19.4     268.3   
Vodacom      24.8        0.3        (14.8     10.3   
Other AMAP      (12.5     (9.2     1.3        (20.4
AMAP      26.7        (2.1     (10.6     14.0   

Note:

1 “Other activity” includes the impact of M&A activity, the revision to intra-group roaming charges from 1 October 2011 and the impact of Indus Towers revising its accounting for energy cost recharges. Refer to “Organic growth” on page 188 for further detail.

India

Service revenue grew by 10.7%* driven by strong growth in mobile voice minutes and data revenue, partially offset by the impact of regulatory changes. Average customer growth slowed in Q4, as Q3 regulatory changes affecting subscriber verification continued to impact gross additions, however customer acquisition costs remained low.

For the year as a whole, growth was negatively impacted by the introduction of new consumer protection regulations on the charging of access fees and the marketing of integrated tariffs and value-added services. However, in Q4 the customer base returned to growth and usage increased. Data revenue grew by 19.8%* driven by increased data customers and higher smartphone penetration. At 31 March 2013 active data customers totalled 37.3 million including approximately 3.3 million 3G data customers.

There was a lower rate of growth at Indus Towers, our network infrastructure joint venture, with a slow down in tenancies from smaller entrants, some operators exiting sites following licence cancellations and a change in the pricing structure for some existing customers in the first half of the year.

Adjusted EBITDA grew by 24.0%*, with a 3.3* percentage point increase in adjusted EBITDA margin, driven by the higher revenue, operating cost efficiencies and the impact of lower customer acquisition costs, partially offset by inflationary pressure.

Vodacom

Service revenue grew by 3.0%* mainly driven by growth in Tanzania, the Democratic Republic of Congo (‘DRC’) and Mozambique. In South Africa, service revenue decreased by -0.3%*, with the growth in data revenue and the success of new prepaid offers being more than offset by MTR reductions, macroeconomic weakness leading to customer spend optimisation with lower out-of-bundle usage, and a weaker performance from independent service providers. Data revenue in South Africa grew by 16.1%*, with higher smartphone penetration and data bundles offsetting continued pricing pressure. Vodafone Smart and Vodafone Red, our new range of integrated contract price plans, were introduced in South Africa during March 2013.

On 10 October 2012, Vodacom announced the commercial launch of South Africa’s first LTE network, with 601 LTE sites operational at 31 March 2013.

Vodacom’s mobile operations outside South Africa delivered strong service revenue growth of 23.3%*, excluding Vodacom Business Africa, driven by a larger customer base and increasing data take-up. M-Pesa continues to perform well in Tanzania, with approximately 4.9 million active users, and was launched in DRC in November 2012. During the year Vodacom DRC became the first operator to launch 3G services in the DRC.

 
 


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  Vodafone Group Plc

  Annual Report 2013

 
   
Operating results (continued)

 

Adjusted EBITDA grew by 10.3%*, with a 1.6* percentage point increase in adjusted EBITDA margin, primarily driven by revenue growth in Vodacom’s mobile operations outside South Africa and savings in network costs in South Africa following investment in single RAN and transmission equipment.

Other AMAP

Organic service revenue decreased by -2.1%* with growth in Egypt, Ghana and Qatar more than offset by revenue declines in Australia and New Zealand. Australia continued to experience steep revenue declines on the back of ongoing service perception issues and a declining customer base. There has been a strong focus on network improvement and arresting the weakness in brand perception. In Egypt the launch of value management initiatives, take-up of data services and the increase in international incoming call volumes and rates drove service revenue growth of 3.7%*, despite competitive pressures and the uncertain political environment. Data revenue continued to show strong growth of 29.6%* and fixed line revenue grew by 29.0%*. In Qatar service revenue grew by 29.8%*, driven by the growth in the customer base, which is now over one million, supported by successful new propositions. In Ghana, continued strong growth in the customer base and the success of integrated tariffs led to service revenue growth of 24.2%*.

Adjusted EBITDA declined by -2.6%*, with adjusted EBITDA margin remaining stable, with the impact of service revenue declines in Australia and New Zealand offsetting growth in Egypt, Qatar and Ghana.

Non-Controlled Interests

Verizon Wireless1 2 3

 

     

2013

£m

   

2012

£m

           % change  
       £     Organic  
Service revenue      19,697        18,039        9.2        8.1   
Revenue      21,972        20,187        8.8        7.8   
Adjusted EBITDA      8,831        7,689        14.9        13.6   
Interest      (25     (212     (88.2        
Tax2      13        (287     (104.5        
Group’s share of result in VZW      6,422        4,867        31.9        30.5   

In the US VZW reported 5.9 million net mobile retail connection additions in the year, bringing its closing mobile retail connection base to 98.9 million, up 6.4%.

Service revenue growth of 8.1%* continued to be driven by the expanding number of accounts and ARPA4 growth from increased smartphone penetration and a higher number of connections per account.

Adjusted EBITDA margin improved, with efficiencies in operating expenses and direct costs partially offset by higher acquisition and retention costs reflecting the increased new connections and demand for smartphones.

VZW’s net debt at 31 March 2013 totalled US$6.2 billion5 (2012: US$6.4 billion5). During the year VZW paid a US$8.5 billion income dividend to its shareholders and completed the acquisition of spectrum licences for US$3.7 billion (net).

Notes:

1 All amounts represent the Group’s share based on its 45% equity interest, unless otherwise stated.
2 The Group’s share of the tax attributable to VZW relates only to the corporate entities held by the VZW partnership and certain US state taxes which are levied on the partnership. The tax attributable to the Group’s share of the partnership’s pre-tax profit is included within the Group tax charge.
3 The definition of “connections” reported by VZW is the same as “customers” as reported by Vodafone.
4 Average monthly revenue per account.
5 Net debt excludes pending credit card receipts.

References to “Q2” are to the quarter ended 30 September 2012, references to the “Q3” or “previous quarter” are to the quarter ended 31 December 2013, and references to “Q4” and “fourth quarter” are to the quarter ended 31 March 2013 unless otherwise stated. References to the “first half of the year” are to the six months ended 30 September 2012 and references to “H2” or the “second half of the year” are to the six months ended 31 March 2013 unless otherwise stated. References to the “year” or “financial year” are to the financial year ended 31 March 2013, references to the “prior financial year” are to the financial year ended 31 March 2012, and references to the “new financial year” and “coming year” are to the financial year ended 31 March 2014 unless otherwise stated. References to the” 2012 financial year”, “2013 financial year”, the “2014 financial year”, the “2015 financial year”, and the “2016 financial year” are to the financial years ended/ending 31 March 2012, 2013, 2014, 2015 and 2016, respectively.

Section 219 SEC filings of interest

Vodafone Group Plc (‘Vodafone’) does not have any subsidiaries, other equity investments, assets, facilities or employees located in Iran, and Vodafone has made no capital investment in Iran. To the best of its knowledge, no US persons, including any US affiliates of Vodafone, are involved in the activities described below. Except as specified below, Vodafone does not believe that it has provided any products, equipment, software, technology, information, support or services into Iran, directly or indirectly, or had any agreements, arrangements or other contacts with the government of Iran or entities controlled by the government of Iran.

Roaming and interconnect

Vodafone has, via certain of its non-US subsidiaries, wholesale roaming and interconnect arrangements with mobile and fixed line operators in Iran. Roaming and interconnect arrangements are standard practice for global telecommunications companies and provide Vodafone’s customers with the ability to make and receive calls in or to over 190 countries, including Iran. Vodafone also provides telecommunications services to certain national embassies located within Iran and to certain embassies of Iran located elsewhere in the world.

Vodafone has, or has had, relationships with the following telecommunications operators in Iran in connection with such roaming and interconnect arrangements, some of which it believes are or may be government controlled entities:

Gostaresh Ertebatat Taliya; Irancell Telecommunications Services Company; Mobile Telecommunication Company of Iran; Rafsanjan Industrial Complex (Coop); Rightel Communication Services Company; Telecommunication Company of Iran; Telecommunication Kish Company; and Telecommunication Infrastructure Company of Iran.

As well as benefiting its customers, Vodafone’s roaming and interconnect arrangements with operators in Iran, and provision of its telecommunications services to national embassies located within, or belonging to, Iran, provide clear benefits for Iranian civil society, as well as for certain groups working in Iran, such as diplomats, journalists and non-governmental organisations. Without these services, lines of communication between Iran and the rest of the world would be reduced, and consequently the flow of information out of and into Iran would suffer. As such, Vodafone intends to continue supporting these services, subject to relevant legal restrictions and business considerations.

The approximate total gross revenues attributable to the arrangements mentioned above for the financial year ended 31 March 2013 were GBP 4,069,0001

Net profit did not exceed the gross revenues related to these arrangements.

Contract between Vodafone Global Enterprise (‘VGE’) and Deutsche Post DHL (‘DHL’)

From 2010 VGE, a Vodafone division which serves multi-national corporate customers, provided DHL with a managed Multi-Protocol Label Switching (‘MPLS’) data network in a total of 67 countries across Eastern Europe, Africa and the Middle East. MPLS is a mechanism in high-performance telecommunications networks which directs and carries data from one network node to the next. VGE’s role in relation to the Iranian element of the contract (one DHL site in Iran) comprised of covering the cost of telecommunications services in, and linking into, Iran, which had been contracted by DHL through regional operators. On 31 January 2013, Vodafone terminated all telecommunications commitments towards DHL in respect of Iran under this contract.

 


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  Vodafone Group Plc

  Annual Report 2013

   

 

 

Guidance

 

The gross revenues attributable to managed service provision in Iran under this contract for the financial year ended 31 March 2013 were GBP 118,0501.

Net profit did not exceed the gross revenues related to this contract.

EPEG Project

On 27 July 2012, Vodafone acquired Cable & Wireless Worldwide Plc (‘CWW’), which (through a subsidiary) is member of a consortium made up of Telecommunication Infrastructure Company of Iran (‘TIC’) (an entity controlled by the government of Iran), Rostelecom and Omantel that is building a high speed cable network from a landing point in Barka, Oman, to Frankfurt, Germany (the ‘EPEG Cable’). The EPEG Cable comprises a submarine cable system between Oman and Iran, interconnected to terrestrial cable systems transiting Iran, Azerbaijan, Russia, Ukraine, Hungary, Slovakia, Austria, and the Czech Republic, terminating in Germany. Each member of the consortium is responsible for funding, building and maintaining its section of the cable, with CWW owning and being responsible for the segment from the Ukrainian border with Russia to Frankfurt, Germany.

The key driver for this system is the need in the global telecommunications market for a high capacity, low latency link from the Middle East and India, separate to existing cable routes through Egypt. All current submarine cable systems from the Middle East and India to Europe go through the Suez Canal, and any political or environmental instability affecting those cable systems could potentially cause major disruption, hence the need to create an alternative to this vitally important global telecommunications route.

As part of the project, up until March 2013 CWW acted as central billing party for the construction of the submarine cable system between Iran and Oman. CWW has agreed to act as the central billing party for the EPEG Cable, which will involve managing payments to and from third parties on behalf of all the consortium members, including TIC. It is currently anticipated that CWW’s role as the central billing party in the project will be ongoing. This project has not reached commercial launch yet; consequently there are no revenues or profits associated with the project.

Intellectual Property

Vodafone, through one of its subsidiaries, also makes some insignificant payments to Iran in order to register certain domain names, register and renew certain trade marks, and protect its brand globally. Vodafone pays annual registration fees of approximately £60 to £72 to the IRNIC (the Domain Registry at the Institute for Studies in Theoretical Physics and Mathematics) per domain name for the registration of three domain names. Vodafone did not make any payments to Iran in order to register or renew any of its trade marks during the fiscal year ended 31 March 2013. Vodafone intends to continue to make such payments as are necessary to maintain registration of these domain names and trade marks, and to protect its global brand. There are no revenues or profits associated with Vodafone’s annual domain name registrations in Iran.

Note:

1 Approximate unaudited figures.

Please see page 179 for “Use of non-GAAP financial information”, page 187 for “Definition of terms” and page 185 for “Forward-looking statements”.

Performance against 2013 financial year guidance

Based on guidance foreign exchange rates1, and excluding M&A and restructuring costs, our adjusted operating profit for the 2013 financial year was £12.3 billion, above the £11.1 billion to £11.9 billion range set in May 2012.

On the same basis our free cash flow was £5.8 billion, at the top of the range of £5.3 billion to £5.8 billion.

2014 financial year guidance2

 

     

Adjusted
operating profit
£bn

     Free cash flow
£bn
 
2014 financial year guidance      12.0–12.8         Around 7.0   

We expect adjusted operating profit 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 capex 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.

Dividend policy

After over 22% growth in the ordinary dividend per share over the last three years, the Board is focused on continuing to balance the long-term needs of the business with ongoing shareholder remuneration, and going forward aims at least to maintain the ordinary dividend per share at current levels.

Assumptions

We have based guidance for the 2014 financial year on our current assessment of the global macroeconomic outlook and assume foreign exchange rates of £1:1.17 and £1:US$1.52. It excludes the impact of licences and spectrum purchases, additional income dividends from VZW, 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.

Actual foreign exchange rates may vary from the foreign exchange rate assumptions used. A 1% change in the euro to sterling exchange rate would impact adjusted operating profit by £30 million and free cash flow by approximately £20 million. A 1% change in the dollar to sterling exchange rate would impact adjusted operating profit by approximately £70 million.

Notes:

1 Guidance foreign exchange rates for the year ended 31 March 2013 were £1:1.23 and £1:US$1.62.
2 For consistency with the basis of presentation of joint ventures in previous years, guidance does not take into account the impact on the Group’s financial results of adopting IFRS 11, Joint Arrangements, for the year ending 31 March 2014.
 
 


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  Vodafone Group Plc

  Annual Report 2013

 
   
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.

 

LOGO


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The Group’s key risks are outlined below:

1. Our business could be adversely affected by a failure or significant interruption to our telecommunications networks or IT systems.

Risk: We are dependent on the continued operation of telecommunications networks. As the importance of mobile and fixed communication in everyday life increases, as well as during times of crisis, organisations and individuals look to us to maintain service. Major failures in the network or our IT systems may result in service being interrupted resulting in serious damage to our reputation and consequential customer and revenue loss.

There is a risk that an attack on our infrastructure by a malicious individual or group could be successful and impact the availability of critical systems. Our network is also susceptible to interruption due to a physical attack and theft of our network components as the value and market for network components increases (for example copper, batteries, generators and fuel).

2. We could suffer loss of consumer confidence and/or legal action due to a failure to protect our customer information.

Risk: Mobile networks carry and store large volumes of confidential personal and business voice traffic and data. We host increasing quantities and types of customer data in both enterprise and consumer segments. We need to ensure our service environments are sufficiently secure to protect us from loss or corruption of customer information. Failure to protect adequately customer information could have a material adverse effect on our reputation and may lead to legal action against the Group.

3. Increased competition may reduce our market share and profitability.

Risk: We face intensifying competition where all operators are looking to secure a share of the potential customer base. Competition could lead to a reduction in the rate at which we add new customers, a decrease in the size of our market share and a decline in our average revenue per customer, if customers choose to receive telecommunications services or other competing services from alternate providers. Competition can also lead to an increase in customer acquisition and retention costs. The focus of competition in many of our markets has shifted from acquiring new customers to retaining existing customers, as the market for mobile telecommunications has become increasingly mature.

4. Regulatory decisions and changes in the regulatory environment could adversely affect our business.

Risk: We have ventures in both emerging and mature markets, spanning a broad geographical area including Europe, Africa, Middle East, Asia Pacific and the US. We need to comply with an extensive range of requirements that regulate and supervise the licensing, construction and operation of our telecommunications networks and services. Pressure on political and regulatory institutions both to deliver direct consumer benefit and protect consumers’ interests, particularly in recessionary periods, can lead to adverse impacts on our business. Financial pressures on smaller competitors can drive them to call for regulators to protect them. Increased financial pressures on governments may lead them to target foreign investors for further taxes or licence fees.

5. Our existing service offerings could become disadvantaged as compared to those offered by converged competitors or other technology providers.

Risk: In a number of markets we face competition from providers who have the ability to sell converged services (combinations of fixed line, broadband, public Wi-Fi, TV and mobile) on their existing infrastructure which we cannot either replicate or provide at a similar price point. Additionally, the combination of services may allow competitors to subsidise the mobile component of their offering. This could lead to an erosion of our customer base and reduce the demand for our core services and impact our future profitability.

Advances in smartphone technology places more focus on applications, operating systems, and devices rather than the underlying services provided by mobile operators. The development of applications which make use of the internet as a substitute for some of our more traditional services, such as messaging and voice, could erode revenue. Reduced demand for our core services of voice, messaging and data and the development of services by application developers, operating system providers, and handset suppliers could significantly impact our future profitability.

6. Severely deteriorating economic conditions could impact one or more of our markets.

Risk: Economic conditions in many of the markets where we operate, especially in Europe, continue to deteriorate or stagnate. These conditions, combined with the impact of austerity measures, result in lower levels of disposable income and may result in significantly lower revenue as customers give up their mobile devices or move to cheaper tariffs.

There is also a possibility of one or more countries exiting the eurozone, causing currency devaluation in certain countries and possibly leading to a reduction in our revenue and impairment of our financial and non-financial assets. This may also lead to further adverse economic impacts elsewhere.

7. Our business may be impacted by actual or perceived health risks associated with the transmission of radio waves from mobile telephones, transmitters and associated equipment.

Risk: Concerns have been expressed that the electromagnetic signals emitted by mobile telephone handsets and base stations may pose health risks. We are not aware that such health risks have been substantiated, however, in the event of a major scientific finding supporting this view this might result in prohibitive legislation being introduced by governments (or the European Union), a major reduction in mobile phone usage (especially by children), a requirement to move base station sites, significant difficulty renewing or acquiring site leases, and/or major litigation. An inadequate response to electromagnetic fields (‘EMF’) issues may result in loss of confidence in the industry and Vodafone.

8. Failure to deliver enterprise service offerings may adversely affect our business.

Risk: By expanding our enterprise service offerings through the growth of Vodafone Global Enterprise, the acquisitions of CWW and TelstraClear, and the establishment of cloud, hosting and international carrier services, the Group increasingly provides fixed and mobile communication services to organisations that may provide vital national services. These organisations rely on our networks and systems 24 hours a day, 365 days a year to deliver their products and services to their customers. A failure to build and maintain our infrastructure to the required levels of resilience for enterprise customers and to deliver to our contracted service level agreements may result in a costly business impact and cause serious damage to our reputation.

 
 


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Principal risk factors and uncertainties (continued)

 

9. We depend on a number of key suppliers to operate our business.

Risk: We depend on a limited number of suppliers for strategically important network and IT infrastructure and associated support services to operate and upgrade our networks and provide key services to our customers. Our operations could be adversely impacted by the failure of a key supplier who could no longer support our existing infrastructure, by a key supplier commercially exploiting their position in a product area following the corporate failures of/the withdrawal from a specific market by competitors, or by major suppliers significantly increasing prices on long-term programmes where the cost or technical feasibility of switching supplier becomes a significant barrier.

10. We may not satisfactorily resolve major tax disputes.

Risk: We operate in many jurisdictions around the world and from time to time have disputes on the amount of tax due. In particular, in spite of the positive India Supreme Court decision relating to an ongoing tax case in India, the Indian government has introduced retrospective tax legislation which would in effect overturn the court’s decision and has raised challenges around the pricing of capital transactions. Such or similar types of action in other jurisdictions, including changes in local or international tax rules or new challenges by tax authorities, may expose us to significant additional tax liabilities which would affect the results of the business.

11. Changes in assumptions underlying the carrying value of certain Group assets could result in impairment.

Risk: Due to the substantial carrying value of goodwill under International Financial Reporting Standards, revisions to the assumptions used in assessing its recoverability, including discount rates, estimated future cash flows or anticipated changes in operations, could lead to the impairment of certain Group assets. While impairment does not impact reported cash flows, it does result in a non-cash charge in the consolidated income statement and thus no assurance can be given that any future impairments would not affect our reported distributable reserves and, therefore, our ability to make dividend distributions to our shareholders or repurchase our shares.

 


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Eurozone

The Group continues to face currency, operational and financial risks as a result from the challenging economic conditions in the eurozone and the potential exit of one or more countries from the euro. We continue to keep our policies and procedures under review to endeavour to minimise the Group’s economic exposure and to preserve our ability to operate in a range of potential conditions that may exist in the event of one or more of these future events.

Our ability to manage these risks needs to take appropriate account of our needs to deliver a high quality service to our customers, meet licence obligations and the significant capital investments we may have made and may need to continue to make in the markets most impacted.

Currency related risks

While our share price is denominated in sterling, the majority of our financial results are generated in other currencies. As a result the Group’s operating profit is sensitive to either a relative strengthening or weakening of the major currencies in which we transact.

The “Operating results” section of the annual report on pages 40 to 44 sets out a discussion and analysis of the relative contributions from each of our three regions and the major geographical markets within each, to the Group’s service revenue and adjusted EBITDA performance. Our markets in Greece, Ireland, Italy, Portugal and Spain continue to be the most directly impacted by the current market conditions and in order of contribution represent 14% (Italy), 7% (Spain), 3% (Portugal) and 3% (Ireland and Greece combined) of the Group’s adjusted EBITDA for the year ended 31 March 2013. An average 3% decline in the sterling equivalent of these combined geographical markets due to currency revaluation would reduce the Group’s adjusted EBITDA by approximately £0.1 billion. Our foreign currency earnings are diversified through our 45% equity interest in VZW, which operates in the US and generates its earnings in US dollars. VZW, which is equity accounted, contributed 54% of the Group’s adjusted operating profit for the year ended 31 March 2013.

We employ a number of mechanisms to manage elements of exchange rate risk at a transaction, translation and economic level. At the transaction level our policies require foreign exchange risks on transactions denominated in other currencies above certain de minimis levels to be hedged. Further, since the Company’s sterling share price represents the value of its future multi-currency cash flows, principally in euro, US dollars and sterling, we aim to align the currency of our debt and interest charges in proportion to our expected future principal multi-currency cash flows, thereby providing an economic hedge in terms of reduced volatility in the sterling equivalent value of the Group and a partial hedge against income statement translation exposure, as interest costs will be denominated in foreign currencies.

In the event of a country’s exit from the eurozone, this may necessitate changes in one or more of our entities’ functional currency and potentially higher volatility of those entities’ trading results when translated into sterling, potentially adding further currency risk.

A summary of this sensitivity of our operating results and our foreign exchange risk management policies is set out within “Financial risk management – Market risk – Foreign exchange management” within note A6 to the consolidated financial statements.

Operational risk

The significant areas of operational risk for the Group are investment risk, particularly in relation to the management of the counterparties holding our cash and liquid investments; trading risks primarily in relation to procurement and related contractual matters; and business continuity risks focused on cash management in the event of disruption to banking systems.

Financial/investment risk: We remain focused on counterparty risk management and in particular the protection and availability of cash deposits and investments. We carefully manage counterparty limits with financial institutions holding the Group’s liquid investments and maintain a significant proportion of liquid investments in sterling and US dollar denominated holdings. Our policies require cash sweep arrangements, to ensure no operating company has more than 5 million on deposit on any one day. Further, we have had collateral support agreements in place for a number of years, with a significant number of counterparties, to pass collateral to the Group under certain circumstances. We have a net £1,151 million of collateral assets in our statement of financial position at 31 March 2013. See “Financial risk management – Credit risk” in note A6 to the consolidated financial statements for further information.

Trading risks: We continue to monitor and assess the structure of certain procurement contracts to place the Group in a better position in the event of the exit of a country from the eurozone.

Business continuity risks: Key business continuity priorities are focused on planning to facilitate migration to a more cash-based business model in the event banking systems are frozen, developing dual currency capability in contract customer billing systems or ensuring the ability to move these contract customers to prepaid methods of billing, and the consequential impacts to tariff structures. We also have in place contingency plans with key suppliers that would assist us to continue to support our network infrastructure, retail operations and employees.

We continue to maintain appropriate levels of cash and short-term investments in many currencies, with a carefully controlled group of counterparties, to minimise the risks to the ongoing access to that liquidity and therefore our ability to settle debts as they become due. See “Financial risk management – Liquidity risk” in note A6 to the consolidated financial statements for more information.

Risk of change in carrying amount of assets and liabilities

The main potential short-term financial statement impact of the current economic uncertainties is the potential impairment of non-financial and financial assets.

We have significant amounts of goodwill, other intangible assets and plant, property and equipment allocated to, or held by, companies operating in the eurozone.

We have performed impairment testing for each country in Europe as at 31 March 2013 and identified aggregate impairment charges of £7.7 billion in relation to Vodafone Italy and Spain. See note 12 to the consolidated financial statements for further detail on this exercise, together with the sensitivity of the results to reasonably possible adverse assumptions.

Our operating companies in Italy, Ireland, Greece, Portugal and Spain have billed and unbilled trade receivables totalling £1.9 billion. IFRS contains specific requirements for impairment assessments of financial assets. We have a range of credit exposures and provisions for doubtful debts that are generally made by reference to consistently applied methodologies overlaid with judgements determined on a case-by-case basis reflecting the specific facts and circumstances of the receivable. See “Financial risk management – Credit risk” in note A6 to the consolidated financial statements for detailed disclosures on provisions against loans and receivables as well as disclosures about any loans and receivables that are past due at the end of the period, concentrations of risk and credit risk more generally.

 
 


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Chairman’s overview

 

“Effective corporate governance is an essential prerequisite to sustainable business performance. Companies that operate with integrity at all times will maintain the trust of their investors, customers and other important stakeholders.”

 

  

 

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Dear Shareholder

At Vodafone, we seek to create a working culture in which honesty, openness and fairness are valued and reinforced at all levels of the organisation, underpinned by a simple, clear and consistently applied governance framework.

 

The Board has overall responsibility for the manner in which your Company runs its affairs. How Vodafone achieves its goals matters: stakeholders rightly expect the highest standards of corporate behaviour in all our activities. Everyone is expected to work in the Vodafone Way and to follow our Code of Conduct, the details of which we explain on page 66. Central to this is the Company’s compliance function which is embedded within each of our local businesses and which has senior executive leadership at Group level and has regular and direct interaction with your Board.

 

To be effective, the Board must have a full understanding of the complexities of our sector, and in its composition it must also reflect the diversity of the societies within which Vodafone operates. The directors are drawn from seven different nationalities. Each director has extensive experience of emerging markets and international businesses and the majority of them have deep knowledge of the technology and data management sectors. The recent appointments of Omid Kordestani and, in 2011, Renee James, exemplify your Board’s forward-looking approach to maintain a high level of informed scrutiny, challenge and guidance as Vodafone’s strategy continues to evolve. My medium-term ambition for the composition of the Board is to bring in further marketing expertise. For further details, please see the directors’ biographies on page 52.

 

Gender is an important aspect of boardroom diversity. Vodafone supports the principles outlined in Lord Davies’ report, “Women on boards”, in February 2011 and aspires to have a minimum of 25% female representation on your Board by 2015. With the departure of Sir John Buchanan and Michel Combes from the Board and the appointment of Omid Kordestani, that proportion currently stands at 15%. Over the coming year and as opportunities to appoint arise, we will continue to seek candidates who have both the appropriate skills and who will help achieve the Board’s gender diversity aspiration.

 

No board can be effective over the long-term if it remains static in its thinking and passive in the face of rapid changes within both the Company and the wider industry. Your Board regularly seeks an external evaluation of its own effectiveness. In the spring of 2013, Ffion Hague of Independent Board Evaluation interviewed the directors and senior executives as part of a comprehensive review of the Board’s performance. Mrs Hague’s findings are summarised on page 58.

 

In common with many businesses, Vodafone is operating under tough economic conditions in most of our markets. Measures to preserve the value of the Company’s core assets will be a critical priority for the Board, as will further development of strategies to deliver growth over the years ahead. Doing so will require a combination of careful stewardship – underpinned by rigorous risk management processes – and agile decision-making to capture opportunities to create value for shareholders. I am confident that your Board is well-equipped to deliver against that mandate.

 

/s/ Gerard Kleisterlee

 

Gerard Kleisterlee

Chairman

 

21 May 2013

 

Compliance with the UK Corporate Governance Code

Throughout the year ended 31 March 2013 and to the date of this document, we complied with the code provisions and applied the main principles of the UK Corporate Governance Code (the ‘Code’). The FRC has issued a revised version of the Code which applies to financial years commencing on or after 1 October 2012. We will report on it for the first time in our 2014 financial year and intend to be in compliance. The Code can be found on the FRC website (frc.org.uk). We describe how we have applied those main principles in this section of the annual report which includes our statement of internal control and risk management, together with the “Directors’ remuneration” section on pages 67 to 82.

Corporate governance statement

We comply with the corporate governance statement requirements pursuant to the FCA’s Disclosure and Transparency Rules by virtue of the information included in this “Governance” section of the annual report together with information contained in the “Shareholder information” section on pages 166 to 173.

 


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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):

 

 

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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)

   

 

LOGO

 

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

            

 

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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

   

 

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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

            

 

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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

   

 

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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

            

 

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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

 

   

 

LOGO

 

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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  53       Vodafone Group Plc
    Annual Report 2013

 

 

 

 

 

LOGO

 

Nick Land

Non-executive

director

Age: 65

 

Tenure: 6 years

 

Nationality: British

 

 

Skills and experience:

g  Financial expert with extensive international
  experience

g Retired from Ernst & Young in 2006 after a
  career spanning 36 years

g Ernst & Young – Chairman (1995–2006);
  Managing Partner of North European, Middle
  East, India and Africa region (1999–2006)

 

Other current appointments:

g  Alliance Boots GmbH – Non-executive director

g Alsbridge plc – Advisory Board member

g Ashmore Group plc – Non-executive director

g BBA Aviation plc – Non-executive director

g Farnham Castle – Chairman of the Board of
  Trustees

g  Financial Reporting Council – Non-executive
  director

g SNR Denton UK LLP – Board advisor

g The National Gallery – Member of Finance and
  Audit Committees

g The Vodafone Foundation – Chairman of the
  Board of Trustees

 

Board Committees:

g Audit and Risk (Chairman)

   

 

LOGO

 

Anne Lauvergeon

Non-executive

director

Age: 53

 

Tenure: 7 years

 

Nationality: French

 

 

Skills and experience:

g Wealth of international business knowledge

g GDF SUEZ – Non-executive director
  (2000–2012)

g AREVA group – Chief Executive Officer
  (2001–2011)

g Areva NC (formerly Cogema) – Chairman
  and Chief Executive Officer (1999–2011)

g Alcatel – Senior Executive Vice President;
  Executive Committee member (1997–1999)

g Lazard Frères & Cie – Partner (1995–1997)

g French Presidency – Deputy Chief of Staff
  (1991–1995); Advisor for Economic
  International Affairs (1990)

 

Other current appointments:

g A.L.P. SAS – Chief Executive Officer

g American Express Company –
  Non-executive director

g EADS N. V. – Non-executive director

g Efficiency Capital – Partner

g Total S.A. – Non-executive director

 

Board Committees:

g Audit and Risk

    

       

 

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Luc  Vandevelde

Senior

Independent

Director

Age: 62

 

Tenure: 9 years

 

Nationality: Belgian

 

 

Skills and experience:

g  Financial, management and marketing skills in
  international business

g Societe Generale – Director (2006–2012)

g  Carrefour S.A. – Chairman (2005–2007)

g Marks and Spencer Group plc – Chairman
  (2000–2004) Promodès/Carrefour – Chief
  Executive Officer (1995–2000)

g Kraft General Foods (1971–1995)

 

Other current appointments:

g Change Capital Partners LLP – Founder and
  Chairman

 

Board Committees:

g  Nominations and Governance

g  Remuneration (Chairman)

   

 

LOGO

 

Anthony

Watson CBE

Non-executive

director

Age: 68

 

Tenure: 7 years

 

Nationality: British

 

 

Skills and experience:

g  Extensive experience in investment and
  asset management

g  Queen’s University, Belfast – Honorary
  degree of Doctor of Science (Economics)
  (2012)

g Awarded a CBE for his services to the
  economic redevelopment of Northern
  Ireland (2009)

g Norges Bank Investment Management
  – Advisory Board member (2007–2012)

g Marks and Spencer Pension Trust –
  Chairman (2005–2010)

g  Financial Reporting Council – Member
  (2004–2007)

g Strategic Investment Board in Northern
  Ireland – Chairman (2003–2010)

g Hermes Pensions Management Ltd – Chief
  Executive (2002–2006); Chief Investment
  Officer (1998–2002)

g Asian Infrastructure Fund – Chairman
  (1999–2010)

g AMP Asset Management plc – Managing
  Director (1995–1998)

g Citicorp Investment Management – Chief
   International Investment Officer (1991–
   1998)

    

       

 

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Philip Yea

Non-executive director

 

 

Skills and experience:

g Private equity investor with experience of
  business and financial turnaround

g 3i Group plc – Chief Executive (2005–2009)

g HBOS plc – Non-executive director
  (2001–2004)

g Manchester United plc – Non-executive
  director (2000–2004)

g  Investcorp – Managing Director (1999–2004)

g Guinness PLC – Finance Director, becoming
  Finance Director of Diageo plc upon merger
  of Guinness and Grand Metropolitan PLC in
  1997 (1993–1999)

     

 

Other current appointments:

g  Hammerson plc – Senior Independent Director

g Lloyds Banking Group plc – Non-executive
   director

g The Shareholder Executive – Board member

g Witan Investment Trust – Senior Independent
   Director

 

Board Committees:

g Audit and Risk

g  Nominations and Governance

Age: 58

 

Tenure: 7 years

 

Nationality: British

 

Other current appointments:

g Advisor to HRH Duke of York

g Bridges Ventures LLP – Advisory Board
  member

g British Heart Foundation – Chairman of the
  Trustees

g  PricewaterhouseCoopers – Advisory Board
   member in the UK

g The Francis Crick Institute – Independent
   director and trustee on the Board

 

Board Committees:

g  Nominations and Governance

g  Remuneration

 

     
   

 

Copies of the service agreements of the executive directors and letters of appointment of the non-executive directors are available for inspection at our registered office.

 

 

LOGO

 


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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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  Annual Report 2013

   

 

 

Corporate governance

Our governance framework

Responsibility for good governance lies with your Board. There is a strong and effective governance system in place throughout the Group.

 

LOGO

How the Board operates

The role of the Board

The Board is responsible for the overall conduct of the Group’s business and has the powers and duties set out in the relevant laws of England and Wales and our articles of association. The Board:

 

g   is responsible for setting the Group strategy and for the management, direction and performance of our businesses;

 

g   is accountable to shareholders for the proper conduct of the business;

 

g   is responsible for the long-term success of the Company, having regard for the interests of all stakeholders; and

 

g   is responsible for ensuring the effectiveness of and reporting on our system of corporate governance.

 

The Board has a formal schedule of matters reserved for its decision and these include:

 

g   Group strategy and long-term plans;

 

g   major capital projects, acquisitions or divestments;

 

g   annual budget and operating plan;

 

g   Group financial structure, including tax and treasury;

 

g   annual and half-year financial results and shareholder communications; and

 

g   system of internal control and risk management.

 

The schedule is reviewed annually. It was last reviewed in March 2013 when it was decided that no amendments were required.

Other specific responsibilities are delegated to Board committees, details of which are given on pages 60 to 63.

 
 


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Corporate governance (continued)

 

Board composition

Our Board consists of 13 directors, 12 of whom served throughout the year. At 31 March 2013, in addition to the Chairman, Gerard Kleisterlee, there were three executive directors and nine non-executive directors. Omid Kordestani was appointed as a non-executive director with effect from 1 March 2013. Michel Combes and Sir John Buchanan were members of the Board until their respective retirements at the AGM on 24 July 2012.

The executive and non-executive directors are equal members of the Board and have collective responsibility for the Company’s direction. In particular, non-executive directors are responsible for:

 

g   bringing a wide range of skills and experience, including independent judgement on issues of strategy, performance, and risk management;

 

g   constructively challenging the strategy proposed by the Chief Executive and executive directors;

 

g   scrutinising and challenging performance across the Group’s business;

 

g   assessing risk and the integrity of the financial information and controls; and

 

g   determining the Company’s broad policy for executive remuneration, and the remuneration packages for the executive directors and the Chairman.

 

The balance and independence of our Board is kept under review by our Nominations and Governance Committee, details of which can be found on page 60.

Tenure of non-executive directors

The Code suggests that length of tenure is a factor to consider when determining the independence of non-executive directors. The table below shows the tenure and independence of each of our non-executive directors. We consider all of our non-executive directors to be independent.

 

    

Date first

elected by

shareholders

   

Years from first

election to 2013

AGM

   

Considered to

be independent

by the Board

 
Gerard Kleisterlee     July 2011        2        See note 1 
Renee James     July 2011        2        Yes   
Alan Jebson     July 2007        6        Yes   
Samuel Jonah     July 2009        4        Yes   
    To be put for       
Omid Kordestani     election July 2013        n/a        Yes   
Nick Land     July 2007        6        Yes   
Anne Lauvergeon     July 2006        7        Yes   
Luc Vandevelde     July 2004        9        Yes 2 
Anthony Watson     July 2006        7        Yes   
Philip Yea     July 2006        7        Yes   

Notes:

1 Considered to be independent on appointment.
2 Considered to be independent for the reasons given on page 60.
 

 

Key roles and responsibilities

 

 

The Chairman

Gerard Kleisterlee

 

The role of the Chairman is set out in writing and agreed by the Board. He is responsible for:

 

 

 

g   the effective operation, leadership and governance
  of the Board;

 

 

 

g   ensuring effectiveness of the Board;

 

 

 

g   setting the agenda, style and tone of Board
  discussions; and

 

 

 

g   ensuring the directors receive accurate, timely and
  clear information.

 

 

 

The Senior Independent Director

Luc Vandevelde

 

 

The Senior Independent Director is responsible for:

 

 

 

g   acting as a sounding board for the Chairman;

 

 

 

g   serving as an intermediary for the other directors;

 

 

 

g   being available to shareholders if they have
  concerns which they have not been able to resolve
  through the normal channels of the Chairman, Chief
  Executive or other executive directors or for which
  such contact is inappropriate; and

 

 

g  conducting an annual review of the performance of
  the Chairman and, in the event it should be
  necessary, convening a meeting of the non-
  executive directors.

 

 

 

The Chief Executive

Vittorio Colao

 

The role of the Chief Executive is set out in writing and agreed by the Board. He is responsible for:

 

 

 

g   management of the Group’s business;

 

 

 

g   implementation of the Company’s strategy and
  policies;

 

 

 

g   maintaining a close working relationship with the
  Chairman; and

 

 

 

g   chairing the Executive Committee.

 

 

 

 

 

The Company Secretary

Rosemary Martin

 

 

The Company Secretary acts as Secretary to the Board. In doing so she:

 

 

 

g   assists the Chairman in ensuring that all directors
  have full and timely access to all relevant
  information;

 

 

 

g   assists the Chairman by organising induction and
  training programmes;

 

 

 

g   is responsible for ensuring that the correct Board
  procedures are followed and advises the Board on
  corporate governance matters; and

 

 

 

g   administers the procedure under which directors
  can, where appropriate, obtain independent
  professional advice at the Company’s expense.

 

 

 

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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Conflicts of interest

The Board is aware of the other commitments of its directors and is satisfied that these do not conflict with their duties as directors of the Company. The process for monitoring conflicts is as follows:

 

g   changes to the commitments of all directors are reported to the Board;

 

g   the directors are required to complete a conflicts questionnaire initially on appointment and annually thereafter;

 

g   any conflicts identified would be submitted to the Board (excluding the director to whom the potential conflict related) for consideration and, as appropriate, authorisation in accordance with the Companies Act 2006 and the articles of association;

 

g   where authorisation is granted, it would be recorded in a register of potential conflicts and reviewed periodically; and

 

g   directors are responsible for notifying the Company Secretary if they become aware of actual or potential conflict situations or a change in circumstances relating to an existing authorisation.

 

No conflicts of interest have been identified during the year.

Board meetings

Matters considered at all Board meetings include:

 

g   the Chief Executive’s report on strategic and business developments;

 

g   the Chief Financial Officer’s report which includes the latest available management accounts;

 

g   an operations update (covering commercial, technology and operational matters);

 

g   a report on potential changes to the Group’s portfolio of corporate assets; and

 

g   where applicable, reports from the Nominations and Governance Committee, Audit and Risk Committee and Remuneration Committee.

 

In addition to the standing agenda items, deep-dive topics covered by the Board during the year included brand performance, strategies for the Company’s consumer and enterprise businesses, new services, spectrum auctions, privacy regulations, regional performance and strategies, health and safety, talent and the control environment.

Board activities in the 2013 financial year

Board activities are structured to assist the Board in achieving its goal to support and advise executive management on the delivery of the Group’s strategy within a transparent governance framework.

The diagram below shows the key areas of focus for the Board which appear as items on the Board’s agenda at relevant times throughout the year. Concentrated discussion of these items assists the Board in making the right decisions based on the long-term opportunities for the business and its stakeholders.

 

LOGO

 
 


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Corporate governance (continued)

 

Board effectiveness

Board effectiveness is reviewed every year. After the 2012 review, the Chairman introduced a few changes to Board procedure, including a non-executives only session before each Board meeting, as well as a session involving just the non-executive directors and the CEO. This has been a successful initiative, creating an additional platform for non-executives to discuss issues or concerns, without prejudicing the activities of the Board meeting itself

The Chairman is responsible for ensuring that each director receives an induction on joining the Board and receives the training he or she requires. The Company Secretary organises the induction.

 

Director induction
On appointment, directors receive a personalised induction programme covering amongst other things:

 

gthe business of the Group;

 

gtheir legal and regulatory responsibilities as directors;

 

gbriefings and presentations from relevant executives;
  and

 

gopportunities to visit business operations.

 

Information and professional development

Keeping up-to-date with key business developments is essential for the directors to maintain and enhance their effectiveness. This is achieved as follows:

 

g   from time to time the Board receives presentations from executives in our business on matters of significance. This year the Chief Technology Officer and the regional chief executives delivered a presentation on the technology and business models of sectors adjacent to our own;

 

g   financial plans, including budgets and forecasts, are regularly discussed at Board meetings;

 

g   the directors have the opportunity to learn the views of major investors at planned events throughout the year (see “Shareholder engagement” on page 64);

 

g   our directors periodically visit different parts of the Group. In September 2012 the Board met with senior management in Spain;

 

g   the non-executive directors are provided with briefings and information to assist them in performing their duties;

 

g   the directors are regularly updated on the Group’s businesses and the regulatory and industry specific environments in which we operate. Updates are by way of written briefings and meetings with senior executives and, where appropriate, external sources.

 

As part of their annual performance evaluation, directors are given the opportunity to discuss training and development needs. Directors are expected to take responsibility for identifying their training needs and to take steps to ensure that they are adequately informed about the Company and their responsibilities as a director. The Board is confident that all its members have the knowledge, ability and experience to perform the functions required of a director of a listed company.

Performance evaluation

Each year the performance of the Board, its committees and directors is evaluated. Every third year the evaluation is conducted by an external advisor. This year the performance evaluation was conducted by Ffion Hague of Independent Board Evaluation. Mrs Hague is an independent advisor and has no other connection with the Company.

The evaluation process took place in the spring of 2013 and involved interviews with the Chairman, each Board member, the Company Secretary, senior management, senior executives who frequently interact with the Board or its committees, and the auditor, Deloitte LLP. Reports on the effectiveness of the Board and its committees were prepared by Mrs Hague. She discussed these with the Chairman and with the chairmen of the committees. Mrs Hague also discussed individual directors’ performance with the Chairman and the Chairman’s performance with Luc Vandevelde, the senior independent director. The Board and the Board committees considered the reports of their effectiveness at their meetings in May 2013. Mr Vandevelde gave feedback to the Chairman on his performance.

Mrs Hague’s reports were positive about the performance of the Board and each of its committees. In particular, she highlighted the Board’s strengths with respect to the seriousness with which it takes its accountability to shareholders, its focus on governance and the smooth operation of the Board and its committees. In light of Mrs Hague’s review, the Board considers the performance of each director to be effective and has concluded that the Board and its committees provide the effective leadership and control required.

As a result of recommendations made in this year’s Board performance evaluation, the Board has agreed:

 

g   to develop further its approach to strategic planning and involve all the directors earlier in the process of strategy development;

 

g   to provide more opportunities for the directors to meet with executives to assist in succession planning; and

 

g   to ensure that induction of new directors enables them rapidly to contribute fully to the Board.

The Board will continue to review its procedures, its effectiveness and development in the financial year ahead.

 


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Re-election of directors

All the directors submit themselves for re-election at the AGM to be held on 23 July 2013 with the exception of Omid Kordestani who will seek election for the first time in accordance with the articles of association. The Nominations and Governance Committee confirmed to the Board that the contributions made by the directors offering themselves for re-election at the AGM in July 2013 continue to be effective and that the Company should support their re-election.

Independent advice

The Board recognises that there may be occasions when one or more of the directors feels it is necessary to take independent legal and/or financial advice at the Company’s expense. There is an agreed procedure to enable them to do so which is managed by the Company Secretary.

Indemnification of directors

In accordance with our articles of association and to the extent permitted by the laws of England and Wales, directors are granted an indemnity from the Company in respect of liabilities incurred as a result of their office. In addition, we maintained a directors’ and officers’ liability insurance policy throughout the year. Neither our indemnity nor the insurance provides cover in the event that a director is proven to have acted dishonestly or fraudulently.

Board committees

The Board has a Nominations and Governance Committee, an Audit and Risk Committee and a Remuneration Committee. Further details of these committees can be found in their reports on pages 60 to 63. The terms of reference of each of these committees can be found on our website at vodafone.com/governance.

The committees are provided with all necessary resources to enable them to undertake their duties in an effective manner. The Company Secretary or her delegate acts as secretary to the committees. The minutes of committee meetings are circulated to all directors.

The calendar for meetings of the Board and its committees is shown below.

 

     Apr 
12 
  May
12
    Jun
12
  Jul
12
    Aug
12
  Sep
12
    Oct
12
  Nov
12
    Dec
12
    Jan
13
    Feb
13
    Mar
13
 

Board

(scheduled meetings)

                                                                       

Nominations and

Governance Committee

                                                                           
Audit and Risk Committee                                                                            

Remuneration

Committee

                                                                          

Directors unable to attend a Board meeting because of another engagement are provided with the briefing materials and can discuss issues arising in the meeting with the Chairman or the Chief Executive. In addition to at least eight scheduled Board meetings, there may be a number of other meetings to deal with specific matters. Each scheduled Board meeting is preceded by a meeting of the Chairman and non-executive directors.

Attendance at scheduled meetings of the Board and its committees in the 2013 financial year

 

Director   Board    

Nominations

and

Governance

Committee

    Audit and Risk
Committee
    Remuneration
Committee
 
Chairman                                
Gerard Kleisterlee1     8/8        4/4                   
Senior Independent Director                                
Luc Vandevelde2     8/8        4/4                5/5   
Sir John Buchanan3     2/2        1/1        1/1           
Chief Executive                                
Vittorio Colao     8/8                           
Executive directors                                
Michel Combes4     2/2                           
Andy Halford     8/8                           
Stephen Pusey     8/8                           
Non-executive directors                                
Renee James     8/8                        3/3   
Alan Jebson     8/8                4/4           
Samuel Jonah     8/8                        5/5   
Omid Kordestani5     1/1                           
Nick Land6     8/8                4/4           
Anne Lauvergeon     7/8                4/4           
Anthony Watson     8/8        4/4        3/3        2/2   
Philip Yea     7/8        3/3                5/5   

Notes:

1 Chairman of the Nominations and Governance Committee.
2 Senior Independent Director from the conclusion of the AGM on 24 July 2012; Chairman of the Remuneration Committee.
3 Deputy Chairman and Senior Independent Director until he retired on 24 July 2012.
4 Executive director until he retired on 24 July 2012.
5 Appointed to the Board with effect from 1 March 2013.
6 Chairman and financial expert of the Audit and Risk Committee.
 
 


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  Annual Report 2013

 
   
Corporate governance (continued)

 

LOGO

 

Key objective:

to ensure the Board comprises individuals with the necessary skills, knowledge and experience to ensure that it is effective in discharging its responsibilities and oversight of all matters relating to corporate governance.

Responsibilities:

 

g   leads the process for identifying and making recommendations to the Board regarding candidates for appointment as directors, giving full consideration to succession planning and the leadership needs of the Group;

 

g   makes recommendations to the Board on the composition of the Board’s committees;

 

g   regularly reviews and makes recommendations in relation to the structure, size and composition of the Board including the diversity and balance of skills, knowledge and experience, and the independence of the non-executive directors;

 

g   oversees the performance evaluation of the Board, its committees and individual directors (see page 58);

 

g   reviews the tenure of each of the non-executive directors; and

 

g   is responsible for the oversight of all matters relating to corporate governance, bringing any issues to the attention of the Board.

Committee meetings

No one other than a member of the Committee is entitled to be present at its meetings; however, other non-executive directors, the Chief Executive and external advisors may be invited to attend. In the event of matters arising concerning my membership of the Board, I would absent myself from the meeting as required and the Board’s Senior Independent Director would take the chair.

Main activities of the Committee during the year

The Committee met four times during the year and considered executive succession planning, replenishment of the Board and the Board effectiveness review.

The Committee leads the process for appointments to the Board. There is a formal, rigorous and transparent procedure for the appointment of new directors. Candidates are identified and selected on merit against objective criteria and with due regard to the benefits of diversity

on the Board, including gender. During the year, an external search was commissioned, using an independent executive search firm, Korn Ferry, which has no other connection with the Company, to search for non-executive director candidates with relevant international experience in the high-tech sector. Omid Kordestani was identified as a potential candidate and subsequently recommended to the Board by the Nominations and Governance Committee on the basis that he met the desired criteria.

The Board acknowledges that diversity extends beyond the boardroom and supports management in their efforts to build a diverse organisation. It endorses the Company’s policy to attract and develop a highly qualified and diverse workforce; to ensure that all selection decisions are based on merit and that all recruitment activities are fair and non-discriminatory. The boardroom diversity policy was introduced in February 2012 and reviewed by the Committee in March 2013. It acknowledges the importance of diversity, including gender, to the effective functioning of the Board and focuses on our aspiration to have a minimum of 25% female representation on the Board by 2015. Following the respective retirements of Sir John Buchanan and Michel Combes, together with the appointment of Omid Kordestani, at 21 May 2013 the Board has 15% female representation. Subject to securing suitable candidates, when making appointments we will seek directors who fit the skills criteria and gender balance that is in line with the Board’s aspiration. We continue to focus on encouraging diversity of business skills and experience, recognising that directors with diverse skills sets, capabilities and experience gained from different geographic and cultural backgrounds enhance the Board. Further information, including the proportions of women in senior management, is shown in “Our people” on page 35, and within the organisation overall, is contained in our 2013 sustainability report, available at vodafone.com/sustainability.

This year, when reviewing the re-election of directors at the AGM in July, the Committee took account of the fact that Luc Vandevelde will have served ten years as of 31 August 2013. The Board has considered the matter carefully and believes that Luc Vandevelde continues to demonstrate the qualities of independence in carrying out his role, supporting the executive directors and senior management in an objective manner. His length of service and resulting experience and knowledge of the Company is of great benefit to the Board. We will continue to keep his independence under review.

In the year ahead the Committee will continue to assess what enhancements should be made to the Board’s and committees’ composition and will continue to monitor developments in corporate governance to ensure the Company remains at the forefront of good governance practices.

/s/ Gerard Kleisterlee

Gerard Kleisterlee

On behalf of the Nominations and Governance Committee

21 May 2013

 


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  Annual Report 2013

   
        
        
        

 

 

LOGO

 

 

Key objective:

the provision of effective governance over the appropriateness of the Group’s financial reporting including the adequacy of related disclosures, the performance of both the internal audit function and the external auditor, and the management of the Group’s systems of internal control, business risks and related compliance activities.

Responsibilities:

 

g   reviewing our financial results announcements and financial statements and monitoring compliance with relevant statutory and listing requirements;

 

g   reporting to the Board on the appropriateness of our accounting policies and practices including critical accounting policies and practices;

 

g   advising the Board on whether the Committee believes the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy;

 

g   overseeing the relationship with the external auditor;

 

g   reviewing the scope, resources, results and effectiveness of the activity of the Group internal audit department;

 

g   monitoring our compliance efforts in respect of section 404 of the US Sarbanes-Oxley Act;

 

g   considering and making recommendations to the Board on the nature and extent of the significant risks the Group is willing to take in achieving its strategic objectives;

 

g   overseeing the Group’s compliance processes; and

 

g   performing in-depth reviews of specific areas of financial reporting, risk and internal controls, as determined by the Committee.

The Committee members have been selected with the aim of providing the wide range of financial and commercial expertise necessary to fulfil the Committee’s duties. The Board considers that I have recent and relevant financial experience, as required by the Code, and has designated me as its financial expert on the Committee for the purposes of the US Sarbanes-Oxley Act.

Committee meetings

The Committee meets at least four times during the year. Meetings are attended by the independent non-executive directors and, by invitation, the Chief Executive, the Chief Financial Officer, the Group Financial Controller, the Group Financial Reporting Director and the Group Audit Director. Other relevant people from the business are also invited to attend certain meetings in order to provide a deeper level of insight into certain key issues and developments. I also invite our external auditor, Deloitte LLP, to each meeting. The Committee regularly meets separately with each of Deloitte LLP, the Chief Financial Officer and the Group Audit Director without others being present.

Main activities of the Committee during the year

The Committee assists the Board in carrying out its responsibilities in relation to financial reporting requirements, risk management and the assessment of internal controls. It also reviews the effectiveness of the Company’s internal audit function and manages the Company’s relationship with the external auditor.

As part of this process of working with the Board and to maximise effectiveness, meetings of the Committee generally take place just prior to a Company Board meeting. I report to the Board as part of a separate agenda item, on the activity of the Committee and matters of particular relevance to the Board in the conduct of their work.

Following the publication of the revised version of the UK Corporate Governance Code, which applies to financial years commencing on or after 1 October 2012, the Board requested that the Committee advise them on whether we believe the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

The Committee’s terms of reference have been amended to reflect this and can be found on our website at vodafone.com/governance.

At its four meetings during the year, the Committee focused on:

Financial reporting

The primary role of the Committee in relation to financial reporting is to review with both management and the external auditor of the appropriateness of the half-year and annual financial statements concentrating on, amongst other matters:

 

g   the quality and acceptability of accounting policies and practices;

 

g   the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;

 

g   material areas in which significant judgements have been applied or there has been discussion with the external auditor;

 

g   whether the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy; and

 

g   any correspondence from regulators in relation to our financial reporting.

 

To aid our review, the Committee considers reports from the Group Financial Controller and the Group Financial Reporting Director and also reports from the external auditor on the outcomes of their half-year review and annual audit. As a Committee we support Deloitte LLP in displaying the necessary professional scepticism their role requires.

 
 


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  Vodafone Group Plc

  Annual Report 2013

 
   
Corporate governance (continued)

 

 

The primary areas of judgement considered by the Committee in relation to the 2013 accounts, and how these were addressed, were:

 

g   Goodwill impairment testing

The judgements in relation to asset impairment largely relate to the assumptions underlying the calculation of the value in use of the business being tested for impairment, primarily the achievability of the long-term business plan and macroeconomic assumptions underlying the valuation process. This is particularly challenging in relation to the Group’s interests in Southern Europe given lower medium-term visibility of economic and business performance and material changes in other valuation assumptions. The Committee addresses these matters through receiving reports from management outlining the basis for the assumptions used. Business plans are Board approved. In addition, this area is a prime source of audit focus and accordingly Deloitte LLP provide detailed reporting to the Committee.

 

g   Taxation

Provisioning for potential current tax liabilities and the level of deferred tax asset recognition in relation to accumulated tax losses are underpinned by a range of judgements. The Committee addresses these issues through a range of reporting from senior management and a process of challenging the appropriateness of management’s views including the degree to which these are supported by professional advice from external legal and other advisory firms. This is also an area of higher audit risk and accordingly the Committee receives detailed verbal and written reporting from Deloitte LLP on these matters.

 

g   Liability provisioning

The level of provisioning for contingent and other liabilities is an issue where management and legal judgements are important. These are addressed through the Committee discussing with management the key judgements made, including relevant legal advice that may have been received. Deloitte LLP also report on all material contingent liabilities.

 

Internal control

We reviewed the process by which the Group evaluated its control environment. Our work here was driven primarily by the Group Audit Director’s reports on the effectiveness of internal controls, significant identified frauds and any identified fraud that involved management or employees with a significant role in internal controls. In addition we received updates from the Group’s Compliance Director on compliance related activities. I meet privately with the Group’s Internal Audit and Compliance Directors outside the formal committee process as necessary.

During the year the Committee also conducted in-depth reviews into the control environments and risk management processes in a number of our markets and also conducted a review of the internal audit function. This review included the scope of Internal Audit’s activity and resourcing together with areas of focus and planning for the next three years.

Oversight of the Group’s compliance activities in relation to section 404 of the Sarbanes-Oxley Act also fell within the Committee’s remit.

Risk management

The Group’s risk assessment process and the way in which significant business risks are managed is a key area of focus for the Committee. Our work here was driven primarily by the Group’s assessment of its principal risks and uncertainties, as set out on pages 46 to 49. We receive reports from the Group Audit Director on the Group’s risk evaluation process and review changes to significant risks identified at both operating entity and Group levels.

Information security is another area of regular focus for the Committee. During the year we conducted a further in-depth review of the security around IT infrastructure and customer information.

In addition the Committee also conducted in-depth reviews into the Group’s finance operations transformation programme and assessment of tax risks.

We view these reviews as being critical to the role of the Committee, as they allow us to meet key business leaders responsible for these areas and provide independent challenge to their activities.

Internal audit

Monitoring and review of the scope, extent and effectiveness of the activity of the Group Internal Audit department is an agenda item at each Committee meeting. Reports from the Group Audit Director