Vodafone Group Plc — FY2019 Form 20-F
Reporting period: Year ended 31 March 2019. This is an annual report, not a standalone 2018 fourth-quarter filing; it includes quarterly operating commentary. Financial statements are prepared under IFRS as issued by the IASB.
Financial performance and position
- Revenue: Statutory revenue was €43.7 billion under IFRS 15. On the comparable IAS 18 basis, revenue was €45.1 billion, down 3.2% reported and 0.1% organically. IAS 18 service revenue was €39.2 billion, down 0.9% organically; excluding UK handset financing and prior-year one-off settlements, service revenue grew 0.3% organically. The prior-year statutory figure (€46.6 billion) is on IAS 18 and is not directly comparable with FY2019 IFRS 15.
- Profit and margins: Operating loss was €951 million, versus operating profit of €4.3 billion. Net loss was €7.6 billion, compared with profit of €2.8 billion. Adjusted EBITDA was €14.1 billion on IAS 18, down 0.5% organically; excluding UK handset financing and one-off settlements, it grew 3.1%. Adjusted EBITDA margin was 31.1% on that adjusted basis. Adjusted EBIT was €4.5 billion on IAS 18, down 2.5% organically. Adjusted EPS was 5.26 eurocents, down 54.6%; basic loss per share was 29.05 eurocents.
- Unusual charges: The Group recorded €3.5 billion of impairment charges, principally Spain (€2.9 billion), Romania (€0.3 billion) and Vodafone Idea (€0.3 billion). It also recorded a €3.4 billion loss on disposal of Vodafone India, presented in discontinued operations. Higher financing costs and a Spanish deferred-tax-asset write-down also weighed on reported results.
- Cash flow and investment: Cash generated by operations was €14.2 billion. Operating free cash flow was €7.1 billion; free cash flow before spectrum was €5.4 billion, broadly flat year over year, and free cash flow after spectrum and restructuring was €4.4 billion, up from €4.0 billion. Capital additions were €7.2 billion; spectrum additions were approximately €3.0 billion, including major Italian, UK and Spanish awards.
- Debt and liquidity: Closing net debt declined to €27.0 billion from €29.6 billion. Cash and cash equivalents were €13.6 billion and undrawn committed facilities were €7.9 billion. The Group reported total cash and facilities of €13.6 billion at year-end for its viability assessment. Long-term borrowings rose to €48.7 billion from €32.9 billion, mainly reflecting bond issuance. Management targets leverage of 2.5x–3.0x and aims to reach the lower end in the next few years.
- Shareholder returns: The Board rebased the annual dividend to 9.00 eurocents per share from 15.07 eurocents, a reduction of about 40%, to rebuild financial headroom and support deleveraging. The Board said it intends to maintain a progressive dividend policy.
Material changes and business developments
- Performance varied by market: Germany, the UK and Other Europe performed well, while Spain and Italy faced intense competition and earnings pressure. South Africa slowed in the second half amid macroeconomic weakness and new data regulation.
- Vodafone completed the combination of Vodafone India and Idea Cellular in August 2018, creating the jointly controlled Vodafone Idea. Vodafone accounts for its 45.2% interest as a joint venture. Vodafone Idea completed a €3.2 billion rights issue in May 2019; Vodafone contributed €1.4 billion, funded by a loan secured against Indian assets.
- The proposed acquisition of Liberty Global cable assets in Germany, the Czech Republic, Hungary and Romania, at an enterprise value of €18.4 billion, was expected to complete in July 2019, subject to regulatory approval. Vodafone cited expected cost and capital-expenditure synergies of €535 million annually by the fifth full year.
- Vodafone announced the sale of Vodafone New Zealand for €2.1 billion in May 2019, subject to regulatory approval. Network-sharing initiatives and potential tower monetisations were also central to plans to improve asset utilisation and returns.
Outlook, risks and management commentary
- FY2020 outlook: Management forecast organic adjusted EBITDA of €13.8–14.2 billion under IFRS 15/16, implying low-single-digit organic growth, and free cash flow before spectrum of at least €5.4 billion. FY2019 guidance was met.
- Cost transformation: Vodafone targeted at least €1.2 billion of net operating-cost reductions in Europe and common functions by FY2021 versus FY2018. It reported €0.4 billion of savings in FY2019 and said it had executed about half the actions needed to meet the target.
- Competition and returns: Management identified price competition, especially in Spain and Italy, and low returns on capital in Europe as significant challenges. It expects 5G investment and spectrum costs to affect financial headroom; it anticipated lower spectrum needs from FY2021 after the German auction.
- Key risks and contingencies: The filing highlights cyber and information-security threats, market disruption, technology resilience, regulatory and tax changes, integration of acquisitions, liquidity and foreign-exchange exposure, and geopolitical supply-chain risk. Major unresolved matters include Indian tax disputes, including retrospective tax claims for which Vodafone has recorded no provision, and the regulatory challenge to the proposed Australian VHA–TPG merger. The filing states that the Board considered liquidity sufficient under tested scenarios and expects the Group to meet liabilities through 31 March 2022.
- Accounting changes: IFRS 15 was adopted in FY2019 and materially affects reported revenue and related balances; management therefore also presents IAS 18 comparisons. IFRS 16 was adopted from 1 April 2019. The filing estimated that adoption would add €9.5–10.5 billion of lease liabilities; this was an estimate, not a FY2019 closing liability.
Important facts for investors to verify
- Reconcile FY2019 IFRS 15 statutory results with IAS 18 comparatives and the Group’s organic, adjusted measures; confirm the basis used for each growth rate.
- Review the assumptions and sensitivity disclosures behind the €2.9 billion Spain impairment and the carrying value of Vodafone Idea, which management said was sensitive to market recovery, synergies and refinancing.
- Track execution of the €1.2 billion European cost-reduction target, Liberty Global transaction approval and synergies, and announced asset sales or tower transactions.
- Assess leverage, refinancing needs, spectrum spending and the cash-flow effects of IFRS 16, alongside the reduced dividend and stated deleveraging target.
- Monitor outcomes and potential cash exposure from Indian tax and regulatory disputes, and the Australian merger litigation. The filing text does not provide clear quantified outcomes for these matters.