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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

OR

For the fiscal year ended: March 31, 2014

OR

OR

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:

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.

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):

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

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

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Empowering everybody to be confidently connected Vodafone group plc annual report on form 20-f 2014

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Vodafone Group Plc

Annual Report on Form 20-F 2014

Inside this year’s report

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 2014 and is dated 10 June 2014. 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 20 May 2014, 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.

Unless otherwise stated references to “year” or “2014” mean the financial year ended 31 March 2014, to “2013” or “previous year” mean the financial year ended 31 March 2013, and to the “fourth quarter” or “Q4” are to the quarter ended 31 March 2014. For other references please refer to page 45.

All amounts marked with an “*” represent organic growth, which excludes the impact of foreign currency movements, acquisitions and disposals and certain other items, see definition on page 212. Definitions of terms used throughout the report can be found on pages 211 and 212.

The terms “Vodafone”, the “Group”, “we”, “our” and “us” refer to the Company and, as applicable, its subsidiaries and/or interests in joint ventures and associates.

Website references are for information only and are not incorporated by reference into our Annual Report on Form 20-F.

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About us
We’ve come a long way since making the first ever While we expect these actions to improve our mobile call in the UK on 1 January 1985. In 30 years, business performance over time, we recognise that a small mobile operator in Newbury has grown financial results alone are not enough. A commitment into a global business and one of the most valuable to improve our social impact and behave ethically telecoms brands in the world. We now have mobile and responsibly at all times is integral to ensuring the operations in 27 countries and partner with mobile long-term sustainability of our businesses. networks in 48 more. Today, we have 434 million mobile customers around the world. And because Our business is constantly evolving to adapt to changes we now do more than just mobile, we’re able to provide in customer behaviour, technology, regulation and fixed broadband services in 17 markets, and 9 million the competitive landscape. Our strategy is our customers use us for their fixed broadband needs. response to these changes, while ensuring we operate in a responsible way.
Our core purpose is to empower our customers to be confidently connected – whether at home, As you’ll see in this year’s report, during the daily commute, in the office, or abroad – we are making great strides wherever and however they choose. We want everyone towards our strategic goals, to be confidently connected to their friends, families, as we begin to realise our vision and customers, and to always have access to the of empowering everybody content and information they choose.
to be confidently connected…
We’re aiming to differentiate ourselves from our competitors, by having the best network, providing

the best customer experience and having the best This year’s report contains a new strategic report on pages integrated worry-free solutions. 1 to 47, which includes an analysis of our performance and position, a review of the business during the year, and outlines the principal risks and uncertainties we face. The strategic report was approved by the Board and signed on its behalf by the Chief Executive and Chief Financial Officer.
Vittorio Colao Nick Read
Chief Executive Chief Financial Officer

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Chairman’s statement
Reflections on the year
It has been a momentous year for Vodafone and our shareholders. We have completed the second biggest transaction in corporate history, with the sale of our interest in Verizon Wireless; progressed our unified communications strategy with the acquisition of leading cable companies; and delivered the biggest ever return to shareholders, of US$85 billion (Ł51 billion).
Three pillars of success
Three distinct elements sum up why Vodafone has had such a strong track record of shareholder value creation over recent years. First, in response to the increasing demand for data we have formulated a clear strategy of becoming a leading unified communications provider and to strengthen further our network and service differentiation, through investments in mobile and fixed capabilities. Second, we have made significant progress in executing our strategy. We have actively managed our portfolio, particularly disposing of our non-controlling interests, and used part of the proceeds to accelerate the roll-out of 3G and 4G mobile capability and the deployment of next-generation fixed line operations in a number of key markets. To accelerate our strategy further we acquired Kabel Deutschland in Germany and agreed the purchase of Ono in Spain – two leading cable companies in their respective markets. Finally, we have extended our very strong track record of balancing the long-term needs of the business with significant returns to shareholders. We ended the year in a strong financial position and with a clear strategy for long-term growth.
Our role in society and protection of customer data
Telecommunications technology has a significant positive impact on economic development and individual wellbeing. We remain committed to enhancing the positive social impact of mobile – our networks and services are used to address everything from illiteracy to supporting the local healthcare infrastructure and realising the potential of budding entrepreneurs.
Our technology helps people to connect and share information. In this context data protection is critical. However, this year there have been a number of troubling allegations about the activities of security agencies in accessing customer data. As a trusted communications service provider, we view our customers’ privacy as absolutely key.
As a demonstration of our commitment to transparency in this regard, our latest sustainability report includes a section on law enforcement disclosure. This explains the nature and extent of government powers to order our assistance, together with information about agency and authority demands in countries where statistical data can lawfully be disclosed.
We are dependent on government policies and regulatory frameworks.
While this applies to all our operations, it is critical for the development of a globally competitive and healthy telecom industry in Europe. Europe needs to find the right balance between protecting consumer interests and the consumer’s long-term interest in investment in next-generation telecom infrastructure and innovation, that will enable future growth and prosperity for its citizens. So far that balance in our opinion has not been found in the proposals for reform of the digital single market currently under consideration in Brussels.
Alignment with shareholders
Our remuneration policies continue to ensure that management is strongly aligned with shareholders, with a focus on rewarding long-term value creation. After the return of value arising from the sale of our Verizon Wireless stake, Vittorio, and other members of the Executive Committee reinvested a significant proportion of their net proceeds back into Vodafone shares to demonstrate their commitment to the business and the strength of that alignment. The Board continues to consider the ordinary dividend to be the core element of shareholder returns, and believes in a consistent dividend policy. This year we raised the dividend per share by 8%, and as a reflection of our confidence in our future performance, we intend to raise it annually hereafter.
Changes to the Board
During the year, Andy Halford informed the Board of his intention to step down as Group CFO. I would like to thank him for his outstanding contribution to Vodafone during his eight year tenure as CFO and in his previous roles. He has brought an invaluable rigour and clarity to our financial reporting and investor communication, while consistently driving significant improvements to our organisational efficiency. I am confident that Nick Read, who joined the Board as CFO on 1 April 2014, will be a worthy successor. During the year there were a number of changes to the non-executive team and these are set out in my Governance statement on page 49. My medium-term ambitions for the composition of the Board are to bring in further marketing expertise, and achieve a greater gender balance. By September we will have three female directors and we will be well on our way to our goal of 25% of Board members being women by 2015.

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Mixed performance financial
Our financial performance this year reflects the combination of good performance in emerging markets and challenging conditions in Europe.
38,
Read more 40
Ł38.3bn +0.8% Ł59.4bn N/A Ł12.1bn +5.7%
Revenue Profit for the financial year Cash generated by operations
Revenues increased by 0.8% as growth in our AMAP Profit for the financial year increased by Ł58.8 billion Cash generated by operations increased by 5.7%, region and from business acquisitions offset revenue primarily due to a pre-tax gain on disposal of our interest primarily as a result of higher working capital related declines in Europe. in Verizon Wireless of Ł45.0 billion and recognition cash flows. of deferred tax assets of Ł19.3 billion.
17.54p -12.8% Ł6.3bn +19.3% Ł4.2bn -24.0%
Adjusted earnings per share Capital expenditure1 Free cash flow1
Adjusted earnings per share was down 12.8% mainly Cash capital expenditure increased by Ł1.0 billion driven Free cash flow declined by 24.0%, reflecting the fall reflecting both lower adjusted EBITDA and higher by the acquisition of Kabel Deutschland, the fibre roll-out in adjusted EBITDA, increased capital expenditure depreciation and amortisation. in Spain, and initial Project Spring investment in India and the impact of weaker exchange rates in our and Germany. emerging markets.

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Our year
A with year activity bursting
April
Expanding Vodafone Red
We expanded Vodafone Red – our customer proposition offering unlimited calls and texts with generous data allowances – to 14 markets.
By March 2014 we reached 20 markets.
April
M-Pesa in India
We launched M-Pesa, our money-transfer service in India. The initial launch included over 8,000 agents in the eastern areas of India, covering around 220 million people, and we have expanded the service nationwide throughout the year.
June
Kabel Deutschland
We announced plans to acquire Kabel Deutschland, Germany’s largest cable operator, for €10.7 billion (Ł9.1 billion). This helps us create a leading unified communications operator in Germany offering combined fixed and mobile services. The transaction closed in October 2013.

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August
4G
We launched 4G in two more markets – the UK and the Netherlands. In the UK the service includes Sky Sports or Spotify. We also launched 4G in Australia, the Czech Republic, Ireland, Malta and Spain during the year.
September
in Sale Verizon of our Wireless interest
We announced an agreement to sell our
45% interest in Verizon Wireless to Verizon for US$130 billion (Ł79 billion). This was the second largest corporate deal in history when it completed on 21 February 2014.
As part of this transaction we increased our ownership of Vodafone Italy from 77% to 100%. See page 14 for more information.
November
Project Spring
We announced details of our Project Spring strategy to increase our organic investment over two years to deliver network and service differentiation compared to our competitors. See page 13 for more information on Project Spring.

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November
Vodafone Foundation
Instant Network
Two Instant Networks, which each pack into four cases, were deployed 24 hours after Typhoon Haiyan, to establish a temporary replacement mobile network where permanent infrastructure was destroyed. In just 29 days, it enabled people to send over 1.4 million texts and make over 443,200 calls.
December
M-Pesa “Text to Treatment” programme
The Vodafone Foundation announced a partnership with Kick4Life in Lesotho, a country where almost 1 in 4 live with HIV/AIDS, to accelerate the number of children being tested and treated for the virus. The initiative aims to get a generation of young people on antiretrovirals via our M-Pesa “Text to Treatment” programme.
January
New brand strategy – Vodafone Firsts
We launched our Firsts programme, inspiring people to do something remarkable for the first time using mobile technology. This new global brand engagement strategy will be launching across all our markets in 2014.

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February
New spectrum in India
We acquired and renewed spectrum in auctions held in India for Ł1.9 billion to provide customers with enhanced mobile voice and data services.
March
The single largest return of value to shareholders
Following the sale of our interest in
Verizon Wireless, we completed the return of US$85 billion (Ł51 billion) to shareholders – the single largest in history.
March
Ono
We announced plans to acquire Ono,
Spain’s largest cable operator, for €7.2 billion (Ł6.0 billion). This, combined with our fibre deployment, will create a leading unified communications provider in Spain.

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Breadth of services scale and globle reach
over 1 trillion 337 billion 9.3 million 544 petabytes

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Assets
Networks
We aim to have the best mobile network in each of our markets, combined with competitive fixed networks in our main markets. This means giving our customers far-reaching coverage, a very reliable connection, and increasing speeds and data capacity. We believe that over time, offering a superior network experience will enable us to secure a premium positioning in most of our markets. We combine our ongoing high level of network investment with a commitment to securing the best possible portfolio of spectrum. For more information on our network strategy see page 30.
Distribution and customer service
We reach our customers through around 14,500 exclusive branded stores including franchises, a broad network of distribution partners and third party retailers. The Internet, whether accessed through a mobile device or PC, is becoming an increasingly important channel for both sales and after sales service. Our call centres are available 24 hours a day, seven days a week in all our European markets.
Supplier relationships
In the last financial year we spent around Ł16 billion buying equipment, devices and services. Given our large scale and global reach, we tend to be a key strategic partner for many of our suppliers. We work closely with them to build robust networks, develop innovative services and offer the widest range of the latest devices.
People
During the year we employed an average of nearly 93,000 people. We support, train and encourage our employees, ensuring they have the right capabilities, commitment and enthusiasm to achieve our targets and build on our success in delivering an outstanding experience to all our customers. We are working hard to build a more diverse workforce that is more representative of our customer base. For more information on our people see page 36.
Brand
Today, Vodafone is the UK’s most valuable brand with an attributed worth of US$30 billion (Source: 2014 Brand Finance Global 500). The strength of our brand raises the profile of our distribution channels and is a major driver of purchasing decisions for consumers and enterprise customers alike.
Customers
With 434 million customers globally, we are one of the biggest mobile operators in the world. Over 90% of our mobile customers are individuals and the rest are enterprise customers ranging from large multinationals, to small and medium sized businesses, down to the owner of the local corner shop. The majority and the growing share of our mobile customers are in emerging markets. We also have over nine million fixed broadband customers, and most of these are in Europe – in fact we are the fourth largest provider of fixed broadband services in Western Europe and will become the third following the pending acquisition of Ono in Spain.
Revenue
Mobile consumers pay for our services either via contracts (typically up to two years in length) or through buying their airtime in advance (prepaid). Enterprise customers often have longer contracts. Fixed customers typically pay via one to two year contracts. On a management basis we have a diverse service revenue stream with 51% from mobile services in Europe, 30% from mobile operations in AMAP, 15% from fixed services and the remainder from other items such as MVNO agreements. On a management basis within our mobile business, 51% of annual service revenue arises from consumers’ monthly price plans, which we call in-bundled revenue. In-bundled revenue is an increasing proportion of our business and is relatively stable compared to out-of-bundle revenue, which is much more vulnerable to competitive and economic pressure.
Cash flow
Our track record of converting revenue into cash flow is strong – with some Ł16 billion generated on a management basis over the last three years. We achieve this by operating efficient networks where we seek to minimise costs, thus supporting our gross margin. We also have strong market share positions – as we are typically the first or second largest mobile operator out of three or four in each market. This provides economies of scale and is a key driver of cost efficiencies and adjusted EBITDA margin, which in turn provides healthy cash flow. See page 32 for more details of our plans to improve our operating efficiency.
Shareholder returns
The cash generated from operations allows us to sustain a generous shareholder returns programme while also investing in the future prosperity of the business – with almost Ł23 billion returned to shareholders over the last three years, excluding the Verizon Wireless return of value. With our strong financial foundation, and as a sign of our confidence in our future performance, we intend to grow the annual dividend per share each year going forward.
Reinvestment
We have maintained a high and consistent level of capex in recent years, to support wider coverage, higher speeds and greater capacity in our networks. Through our IT investment we are enhancing our customer relationship capability and providing new customer billing services.
In addition, we have continued to invest in our stores, our internet and social media presence and spectrum licences to support future services and growth.
To boost our investment even more we started Project Spring, our organic investment programme, which aims to accelerate and extend our current strategy, and thereby strengthen further our network and service differentiation. We expect total investments, including Project Spring, to be around Ł19 billion over the next two years. See page 13 for more details.

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A for defining the Group… year
Our emerging markets are performing well, although our mature European markets continue to face challenging conditions. However, we have continued to make good progress in delivering our long-term strategy, by building firm foundations for the future with our substantial investments in Vodafone Red, Project Spring and unified communications.
Review of the year
It has been a year of substantial strategic progress. The sale of our Verizon Wireless stake has rewarded shareholders for their support, and enabled the acceleration of our strategy through the acquisition of Kabel Deutschland, the pending acquisition of Ono and our Project Spring investment programme.
Our operational performance has been mixed. The Group’s emerging markets businesses have performed strongly throughout the year: we have executed our strategy well and have successfully positioned ourselves for the rapid growth in data we are now witnessing. In Europe, where we continue to face competitive, regulatory and macroeconomic pressures, we have taken steps to improve our commercial performance, particularly in Germany and Italy, and are beginning to see encouraging early signs.
Verizon Wireless transaction
The sale of our 45% interest in Verizon Wireless, the leading mobile operator in the United States, was the culmination of a highly successful 14 year investment which began when Verizon and Vodafone entered into a partnership to create Verizon Wireless in 2000.
We had been very happy to stay invested in the business over the years, despite our minority position, because of the strong growth and returns generated, and the attractiveness of the US market. However, the Board viewed the offer of US$130 billion as a very attractive price at which to exit. The completion of the transaction enabled us to return a record
US$85 billion to our shareholders, while retaining ample financial flexibility to pursue our own strategy both organically and through targeted acquisitions. See page 14 for more information.
Strategic progress
We have made very substantial progress on our strategy in the past year, despite the significant challenges faced in Europe. With the acquisition of Kabel Deutschland in Germany and the planned purchase of Ono in Spain, our continued fibre build in Portugal and Spain, and our fibre plans in Italy, allied to last year’s acquisition of Cable & Wireless Worldwide in the UK, we are becoming a leader in unified communications across Europe. This enables us to access a large and growing fixed revenue pool where our market share is currently much lower than in mobile, while also helping us defend our mobile business from converged offers.
We continue to provide a market-leading network experience in most of our markets, and now have 4.7 million 4G customers across
14 countries – all our major European markets, as well as South Africa, Australia and New Zealand. Early experience from 4G shows us that customers use roughly twice as much data compared to 3G data usage, driven principally by video streaming.
Smartphone adoption continues to grow strongly in all markets and the increased availability of mobile applications and low cost devices is driving significant growth in data usage. Data traffic in India increased by 125% year-on-year, and at the end of the year we had 52 million data customers in India alone, with seven million of these being 3G data customers. Data adoption is becoming truly mass market.
Our Vodafone Red plans are now available in 20 markets, with 12 million customers at the year end. The footprint of our money transfer service, M-Pesa, continues to grow and we expanded the service with launches in the year in India, Egypt, Mozambique, Lesotho, and our first European market – Romania. In India the service is now nationwide.
Enterprise now represents 27% of Group service revenue on a management basis. The creation of a discrete Enterprise unit is also beginning to bear fruit, as we focus on a smaller number of products with the potential for global application. Our strategic focus areas –
Vodafone Global Enterprise, serving our biggest multi-national accounts and our machine-to-machine unit, where we are a global leader, delivered further growth. We continue to develop Vodafone One Net to provide converged services for small- and medium-sized companies.

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Where we aim to be five years from now
Consumer Europe Communications Unified Emerging Consumer Markets Enterprise
A leading mobile data provider Converged services in all A strong leader and first Major enterprise provider key European markets choice for data with full service offering
Supported by:
An excellent network experience A simplified and cost-efficient business model and operations
Project Spring accelerates and extends our strategic priorities through investment in mobile and fixed networks, products and services and our retail platform, to strengthen further our network and service differentiation.
Read more about our strategy
21
Project Spring
Project Spring is our organic investment programme which will allow us to accelerate and extend our strategic priorities through investment in mobile and fixed networks, products and services, and our retail platform. Announced alongside the Verizon transaction in September
2013, Project Spring will strengthen further our network and service differentiation. The transition to 4G and unified communications, coupled with an improved economic outlook for Europe, lead us to believe Vodafone has a unique opportunity to invest now. We expect total investments, including Project Spring, to be around Ł19 billion over the next two years. The main elements of our investment are:
4G in Europe: we aim to reach 91% population coverage by March 2016; 3G in emerging markets: with 95% population coverage in targeted urban areas in India by March 2016; next-generation fixed line infrastructure: laying fibre to more base stations and deep into residential areas across Europe and in selected emerging market urban areas; development of enterprise products and services: extending our M2M reach to 75 countries and rolling out hosting and IP-VPN services internationally; and investment in our retail estate: modernising 8,000 of our stores to improve the customer experience.
Outlook
In the short term, we continue to face competitive, macroeconomic and regulatory pressures, particularly in Europe, and still need to secure our recovery in some key markets. While we are therefore heavily focused on the successful execution of our significant capital investment programme, we are also absolutely committed to operational efficiency and standard operating models across all markets. We anticipate that our investments will begin to translate into clearly improved network performance and customer satisfaction in the coming year. In the medium term, this will become more evident in key operational metrics such as churn and average revenue per user (‘ARPU’); and subsequently into revenue, profitability and cash flow.
I am confident about the future of the business given the growth prospects in data, emerging markets, enterprise and unified communications. We have commenced our Project Spring two-year investment programme which will accelerate our plans to establish stronger network and service differentiation for our customers. I expect the first signs of this to become evident later this year, with wider 4G coverage in Europe and 3G coverage in emerging markets, improved network performance and increased customer advocacy. While cash flow will be depressed during this investment phase, our intention to continue to grow dividends per share annually demonstrates our confidence in strong future cash flow generation.

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Crystallising value from Verizon Wireless
Opening chapter in the the next history of Vodafone
On 2 September 2013, we announced our agreement with Verizon to sell our US group, whose principal asset was its 45% interest in Verizon Wireless, for US$130 billion, mainly in cash and Verizon shares. We chose to return around 71% of the net proceeds to shareholders amounting to around US$85 billion. This is the largest ever single return to shareholders in history and rewards our shareholders for their long-term support of our US strategy. This also represents the opening of an important new chapter in our history by leaving us in a strong financial position and well positioned to execute our strategy.
A big deal! Vodafone Italy
This was the second biggest transaction ever As part of the transaction we also agreed and the return of US$85 billion (£51 billion) to acquire Verizon’s 23% stake in Vodafone is the equivalent of around 90% of the total Italy, in which we owned 77%, thereby dividends paid by all the other FTSE 100 securing full ownership. companies in the whole of 2013.

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Why sell our stake? This will amount to the largest and fastest period of investment in our history. We have used the retained proceeds to reduce our net debt We have had a very successful 14 year investment in Verizon significantly and as a result the Company is much more resilient
Wireless. During this time its service revenue has quadrupled going forwards. to US$69 billion, its adjusted EBITDA has grown from US$6 billion in 2001 to US$34 billion in 2013, and we received nearly US$16 billion of income dividends. This investment has clearly created a great deal What’s the shareholder return? of value for Vodafone shareholders. The sale not only crystallised We have a track record of making significant returns to shareholders – the value of this significant asset, it has also enabled us to realise that with almost Ł23 billion returned in the last three years alone in the form value at a very attractive price, representing around nine times Verizon of dividends and share buybacks. Consistent with that track record, Wireless adjusted EBITDA and 13 times operational cash flow. we also returned a large proportion of the net proceeds from the sale of our interest in Verizon Wireless – 71% or US$85 billion (Ł51 billion)
What will the sale enable us to do? comprising Ł37 billion worth of Verizon shares and Ł14 billion of cash, during the year. As part of the transaction, we also consolidated our
We carefully considered how to make best use of the sale proceeds shares – exchanging every eleven old Vodafone shares for six new and we decided to retain a proportion of the cash received to allow Vodafone shares. us to invest in the business and to reduce net debt, and we returned US$85 billion to shareholders. Overall, we believe we have struck the right balance between investing in the future of the Company and rewarding our shareholders for their
Project Spring, our new investment programme, will improve the quality long-term support of our US strategy. Following the sale we have of our networks, products and services in our major markets, relative reduced debt and established a bigger gap between our cash flow and to our competitors. Project Spring is in addition to our existing capital ordinary dividends paid. As a result, and as a sign of confidence in the expenditure programme and will bring total investment over the next future, we intend to continue to grow the dividend per share annually two years to around Ł19 billion. going forward.

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Monitoring and performance our progress
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. The pressures we have faced in Europe are reflected in the decline in service revenue on a management basis and adjusted EBITDA margin and the loss of market position. Despite this we met our financial guidance and increased our dividend per share and we have made clear progress in our operational and commercial KPIs.
Organic service revenue growth on a management basis More work to do
Growth in the top line demonstrates our 2012 +1.5%* We were unable to grow our service revenue ability to grow our customer base and this year, as the competitive, regulatory and stabilise or increase ARPU. It also helps 2013 -1.9%* macroeconomic pressures in Europe seen last to maintain margins. We aim to return year continued. to service revenue growth. 2014 -4.3%*
Adjusted EBITDA margin1 on a management basis
More work to do
Growth in our adjusted EBITDA margin 2012 31.2% As expected, competitive, regulatory and magnifies the impact of revenue growth macroeconomic pressures in Europe on the profitability of our business. 2013 30.5% offset improvements in AMAP and our We expected this year’s margin to be lower margin declined. than last year’s. 2014 29.4%
Adjusted operating profit (‘AOP’)1 on a management basis
Achieved
AOP includes the impact of depreciation 2012 Ł11.9bn The fall in AOP reflects the disposal of Verizon and amortisation and includes the results Wireless during the year, the decline in adjusted of our non-controlling interests. 2013 Ł12.6bn EBITDA and higher depreciation and amortisation.
We gave guidance of around Ł5 billion for On a guidance basis, AOP was Ł4.9 billion the year on a pro forma basis, see page 39. 2014 Ł7.9bn (see page 39 for details).
Free cash flow on a management basis Achieved
Maintaining a high level of cash 2012 Ł6.1bn Free cash flow fell in the year as a result generation is key to delivering strong of exchange rate movements in some of our shareholder returns. 2013 Ł5.6bn emerging markets and lower adjusted EBITDA.
We gave guidance of Ł4.5–Ł5 billion for On a guidance basis, free cash flow was the year on a pro forma basis, see page 39. 2014 Ł4.4bn Ł4.8 billion (see page 39 for details).
% of European mobile service revenue in-bundle2 on a management basis
Achieved
Our strategic push towards bundling 2012 Data not available We continue to make great progress in this voice, text and data allows us to defend area, helped by the rapid adoption of our our revenue base from substitution, 2013 51% Vodafone Red plans (see page 22). and to monetise future data demand growth. We aim to increase this proportion 2014 58% each year.
Smartphone penetration (March 2014, Europe2) on a management basis
Achieved
Smartphones are key to giving our 2012 28% Our customers increasingly want customers access to data; the more our smartphones as data becomes more and customers have them, the bigger our data 2013 38% more crucial to everyday life. We are on course opportunity becomes. We aim to increase to meet our target of half of our European penetration to over 50% by 2015. 2014 45% customers using smartphones by next year.
See pages 22 and 23 for more information.

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KPIs achieved Want to find out more?
All KPIs are shown on a management See how these targets are used with the basis incentive plans for senior management
03 69
Mobile network performance floor (Europe2)
Achieved
We continuously improve the speed 2012 75% at least 400Kbps We achieved our 2015 target this year. of our European network to create the Our new target is for 90% of data sessions best data experience for our customers 2013 75% at least 1Mbps in Europe to be at least 3Mbps by March and had a target of 75% of smartphone 2016. See page 30 for more detail on our data sessions to be at least 3Mbps by 2015. 2014 75% at least 3Mbps Network strategy.
Relative mobile market share performance More work to do
We track our relative performance 2012 11 out of 17 markets We lost share in the majority of our European by measuring the change in our revenue markets over the year but gained share market share against our key competitors. 2013 9 out of 17 markets in some of our key emerging markets,
We aim to gain or hold revenue market including India, South Africa and Turkey. share in most of our markets. 2014 7 out of 17 markets
Ordinary dividend per share Achieved
The ordinary dividend remains the primary 2012 9.52p The Verizon Wireless transaction enabled method of shareholder return and we have us to increase the dividend per share an outstanding record of growth here. 2013 10.19p by 8% to 11.00 pence and we now expect to increase it annually.
Our target was to maintain the dividend per share at its 2013 level. 2014 11.00p
Consumer net promoter score (‘NPS’) Achieved
We use NPS to measure the extent 2012 11 out of 21 markets This year we increased the number of markets to which our customers would where we are ranked number one but the recommend us to friends and family. 2013 8 out of 21 markets total of nine markets remains too low. We aim We aim to increase or maintain the number to improve our position over the coming year. of markets where we are ranked number 2014 9 out of 21 markets one by NPS.
Employee engagement Achieved
The employee engagement score 2012 77 Our employee engagement score remains measures employees’ level of broadly stable and we retained a top quartile engagement – a combination of pride, 2013 78 position. More information can be found loyalty and motivation. Our goal here on page 36. is to retain our top quartile position. 2014 77
% of women in the senior leadership team Achieved
Diversity increases the range of skills 2012 19% Gender diversity is a key area of our global and styles in our senior leadership diversity strategy and we have continued team, our 223 most senior managers. 2013 20% to make progress in this area. We also Increased female representation is one increased the number of women on both measure of diversity. Our goal is simple, 2014 22% the Executive Committee and the Board. to increase the proportion each year. See page 36 for more details.
Notes: 1 Adjusted EBITDA and AOP have been redefined to exclude restructuring costs. AOP has also be redefined to exclude amortisation of customer bases and brand intangible assets. Comparatives have been restated.

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Market overview
industry The telecommunications today
The fixed and mobile telecommunications industry is a large and important sector, generating around US$1.5 trillion of revenue. Today there are seven billion mobile users and over 650 million fixed customers.
The global mobile market The global fixed market
Scale and structure The fixed communications market is valued at around US$500 billion.
The mobile industry alone has seven billion users, generating over Over the last three years, revenue from voice services has declined
US$960 billion of annual service revenue every year. The majority as the demand for traditional fixed line calls has remained static of revenue comes from traditional calls and texts (for example, last at around one billion users. In contrast, revenue from fixed broadband year 7,800 billion texts were sent around the world last year). However, or internet usage on the PC is growing with an estimated 650 million over the last few years the demand for data services, such as internet customers worldwide – an increase of nearly 30% over the last three browsing on a smartphone, has accelerated, and today around 28% years. This growth has been spread across all forms of broadband – of mobile revenue is from data, up from 13% in 2009. DSL (copper), cable and fibre, and within this, there is a growing preference for the high speed capability provided by cable and fibre. Around 74% of mobile users are in emerging markets, such as India and
Africa, reflecting the typical combination of large populations and the lack of fixed line infrastructure. The remaining users are from wealthier mature markets, such as Europe. However, the proportion of the population with a phone – or mobile penetration – tends to be higher in mature markets (usually over 100%) and lower in emerging markets, particularly in rural areas, due mainly to lower incomes and less Telecommunications revenue US$ billion network coverage.
1,500 209 217
Growth 184 197
170 298 277
The demand for mobile services continues to grow strongly. In the last 362 340 319 three years the number of users increased by an average of 9% each 1,000
940 963
year. In 2009 global mobile penetration was only 69%, and by 2013 862 902
822
it had risen to 98%. Most of the increase in users has been from emerging markets due to favourable growth drivers – young and 500 expanding populations, faster economic growth, low but rising mobile penetration, and less fixed line infrastructure. The other key area 0 2009 2010 2011 2012 2013 of growth is data, which is being driven by increasing smartphone and
n Mobile n Fixed voice n Fixed broadband
tablet penetration, better mobile networks, and an increased choice of internet content and applications (‘apps’). Mobile users by market 2013: 7.0 billion (2012: 6.4 billion)
Competition
North America: 6%
The mobile industry is highly competitive, with many alternative China: 18% providers, giving customers a wide choice of supplier. In each country Europe: 17% there are typically at least three to four mobile network operators
(‘MNOs’), such as Vodafone. In addition, there can be numerous mobile virtual network operators (‘MVNOs’) – suppliers that rent capacity India: 14% Mature Asia: 4% from mobile operators to sell on to their customers. There can also be competition from internet-based companies and software providers
South America: 10%
that offer alternative communication services such as voice over internet protocol (‘VoIP’) or instant messaging services. Emerging Asia: 15%
Africa: 11%
Regulation Middle East: 5%
The mobile industry is very heavily regulated by national and n Mature markets n Emerging markets supranational authorities. Regulators continue to lower mobile
Mobile phone penetration by market % termination rates (‘MTRs’) which are the fees mobile companies charge for calls received from other companies’ networks, and to limit 150 141 the amount that operators can charge for mobile roaming services. 138 These two areas represent around 12% of service revenue for Vodafone. 112
100
Revenue trends 93
In an environment of intense competition and significant 78 74 regulatory pressures, the price of mobile services has tended 50 to reduce over time. However, with both more mobile phone users, mainly in emerging markets, and more data usage, global mobile revenue remains on a positive trend and expanded by 2% in 2013. 0 Germany UK US Turkey India Kenya
n Mature markets n Emerging markets
Note: The industry data on this page is sourced from Strategy Analytics, Analysys Mason and Ovum.

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Supporting access to mobile
to Overcoming mobile ownership barriers for emerging women markets in
Our Connected Women report looked at the gender gap in mobile phone ownership in emerging economies and the social and economic impact of extending women’s access to mobile phones.
Vodafone Turkey launched the Vodafone Women First programme in 2013, which combines promotional offers with services that help women to increase their income, use mobile technology and acquire new skills.
Launched in 2013, it attracted 75,000 women customers in its first nine months, of which 15% were new customers for Vodafone.
Want to find out more?
See sustainable business See the full Connected Women report
34 vodafone.com/connectedwomen

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Where is heading the industry
The pace of change in the industry over the last few years has been significant and is expected to continue – with new revenue streams, new users, new services, major improvements to networks, and the convergence of fixed and mobile services.
Growing importance of data and other new revenue areas Regulation will continue to have a significant impact
Mobile voice and texts, our traditional revenue sources, have reached The industry is expected to see continued downward revenue pressure maturity in a number of markets. To deliver future growth opportunities, from regulation. For example the Europe Commission is seeking the we are investing in newer revenue areas such as data. It is estimated removal of all roaming surcharges after 2016 (for Vodafone roaming that between 2013 and 2017 data revenue for the telecommunications accounts for around 6% of European service revenue). In contrast, sector is set to grow by US$128 billion, compared to a US$38 billion Commission proposals to harmonise the speed at which Member States decline in voice revenue over the same period. The demand for data will roll out spectrum and the duration of contracts, should encourage continue to be driven by rising smartphone and tablet penetration and investment. In our largest emerging market, India, the regulatory usage, and improvements in mobile network capability. As the demand framework is becoming clearer. for data grows, mobile networks have to be reconfigured to data, while
Improving economic environment in Europe still meeting the need for traditional texts and calls. Already 91% of the
The economic recession in Europe over the last two years has been world’s total traffic on mobile networks is data. The data services most a key driver of the declining revenue trends in Europe for many used are video streaming and internet browsing which require high operators. However, we have started to see early signs of economic speed networks. Therefore, we are investing in ultrafast 4G with average recovery in Europe, with a return to GDP growth in 2013 in Northern download speeds of over 75Mbps today, and the expectation of faster Europe and an expected recovery in 2014 in Southern Europe. speeds, of up to 300Mbps, by the end of calendar 2014.
New applications for mobile services are being developed by the industry to extend the use of mobile beyond everyday communication and deliver new revenue streams, such as mobile payments via a handset or machine-to-machine services, including the location Industry mobile service revenue by type % monitoring of vehicles, through a SIM card embedded in the vehicle.
100 28 31 34 36 39
Convergence of fixed and mobile into unified communications
We expect a continued trend towards unified communications such 80
72 69
as bundled mobile, fixed and TV services. These provide a range 66 64
60 61
of benefits for the user, including simplicity, flexibility and cost savings.
The demand for these services is already established among enterprise 40 customers and it is now becoming more visible in the consumer market, particularly in southern European markets, such as Spain. We believe 20 that this demand, combined with technological advances delivering
0 2013 2014e 2015e 2016e 2017e
easier connection of multiple data devices, will support strong data Data
n Voice and texts n
growth in future, and that this will need to be managed by access to next-generation fixed networks, principally cable or fibre, to support Industry mobile phone users by market % increased speed and capacity demands.
100 74 75 76 77 77
Strong demand from emerging markets
Emerging markets have the most potential for future mobile customer 80 and revenue growth driven by rising populations, strong economic growth, lower mobile penetration and a lack of alternative fixed line 60 infrastructure. According to industry analysts, by 2017 there will be 1.7 billion new mobile users across the globe, and most will be from 40 emerging markets. As a result by 2017, 77% of the world’s mobile users 26 25 24 23 23 will be from these markets. 20
Increasing range of competitors 0 2013 2014e 2015e 2016e 2017e
The high level of competition among established MNOs is expected n Mature markets n Emerging markets to continue. However, there is also a wider pool of new competitors. % of new mobile customers taking converged services in Spain
Alternative communication technologies, such as instant messaging services which use data, rather than traditional voice and text, 60 51% 51%
49% 49% 57%
are increasingly used by mobile consumers. In response, operators 44%
50
have begun to replace per unit charges for voice and text services with unlimited bundles, and combine this with a fixed fee for data 40 usage. Meanwhile MVNOs which offer low prices, but have little 30 capital invested, have in recent periods taken share from established 20 24% capital intensive operators. However, the move to 4G and unified communications presents an opportunity for the major operators 10 to differentiate the quality of their networks and services.
0 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Feb 13
Note: The industry data on this page is sourced from Strategy Analytics, Analysys Mason and Ovum.

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Accelerating our strategy
As the demand for ubiquitous data grows rapidly, we are transforming
our business to become a leading unified communications company,
and to strengthen further our network and service differentiation against
our peers.
Our strategy is shaped by the following industry trends:
Growing importance Increasing demand Strong demand from Increasing range Improving economic
of data and other for unified emerging markets of competitors environment in Europe
new revenue areas communications
for both enterprises
and consumers
In light of these expected industry trends our strategic goals
are focused on four key growth areas and targets:
Consumer Europe Unified Communications Consumer Emerging Markets Enterprise
A leading mobile data provider Converged services in all A strong leader and first Major enterprise provider
key European markets choice for data with full service offering
Supported by:
An excellent network experience A simplified and cost-efficient
business model and operations
Project Spring accelerates and extends our strategic priorities
through investment in mobile and fixed networks, products
and services, and our retail platform, to strengthen further our
network and service differentiation.
What we want to achieve for our customers:
Always best connected Unmatched customer experience Integrated worry-free solutions
Best mobile voice and data Number one in customer experience – Simplest connectivity and price plans
(coverage and quality) – 4G/3G in store, online, on the phone
Converged enterprise product suite
Competitive in fixed and best Consistent execution across markets
Innovator in new services, such
converged experience
as mobile payments
Read more: Consumer Europe Unified Consumer Enterprise Network Operations
Communications Emerging Markets
22 24 26 28 30 32

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Consumer Europe
While voice and messaging remain important for European consumers, demand for data is rapidly accelerating. We are focused on providing the best data experience – both in mobile and fixed – matched by outstanding customer service combined with a range of worry-free price plans and additional services.
Context Where we are going
a Nearly half our European customers now use a smartphone, a We are enabling worry-free usage through our Red and with more and more also using tablets. roaming plans. a The average data usage per customer is also increasing rapidly. a We are improving our customer experience across all Customers want simplicity and worry-free contact points. a bills and they demand the best in customer service. a We are pushing the adoption of smartphones and are encouraging bundling of fixed and mobile for residential our customers to use more and more data. a The products customers is becoming increasingly common across Europe and a We are becoming a leading unified communications provider we expect this trend to continue. across Europe. a Aggressive price competition continues in many of our markets. a We are innovating in mobile payments.
Vodafone Red enabling worry-free usage 4G driving increased data usage and engagement
Vodafone Red offers unlimited calls and texts with generous data Although most of our customers are using 2G and 3G services, we are allowances – enabling our customers to use their smartphones seeing increased demand for 4G services, with 4.7 million customers worry-free. We already have 12 million users across 20 markets and across 14 markets. 4G is attractive because it offers much faster speeds 37% of new contract customers join on Red plans. Our research shows and a better user experience and as a result our 4G customers use that Red customers are more likely to recommend us to their friends on average twice as much data as our 3G users. and family and we are seeing early signs that they are less likely to leave By adding attractive content such as music and sport packages with 4G us for another operator. Red also helps us protect our revenue, with 58% plans we believe we can drive growth in both data usage and revenue. of our European mobile service revenue on a management basis now
In the UK for example, 4G plans are generating 18% more ARPU versus in-bundle compared to 51% a year ago, and it reduces the risk to our comparable 3G plans and customers are using 2.3 times more data. business from over?the?top services.
We have launched Red family plans, with 0.8 million customers, Mobile devices driving data adoption and have combined Red plans with fixed broadband in some markets. The growing popularity of smartphones is supporting data adoption, accounting for 78% of the handsets we sold in Europe last year.
Simple, worry-free roaming offer This has helped European smartphone penetration grow to 45%.
As people travel they want to use their phones and “roam” abroad,
We sold 2.2 million Vodafone branded smartphones in Europe and therefore we developed an offer that lets customers use their home beyond during the year, instrumental in stimulating data adoption allowance for a small daily fee, removing any worries about their bills. in low-end contract and prepaid segments.
These plans are now available in 15 markets and 14 million customers have registered to use these services, accounting for 26% of consumer Fixed and unified communications contract roamers. Customers on these offers use their phone more and Consumers increasingly want unified communications as they benefit generate higher roaming ARPUs than those on standard tariffs. from one plan that includes their fixed and mobile connections and in some cases TV package as well. We already have over 8.5 million
Delivering an unmatched customer experience fixed broadband customers in Europe and we are increasingly offering We are modernising around 8,000 of our stores to a new format that mobile and fixed services together. We expect unified communications enables customers to interact with us in a more engaging way and to become more and more important over time – see page 24 for details these stores have been seen to increase transactions by more than 5%. on our strategy.
We have already upgraded over 1,100 stores and Project Spring will accelerate our plans to modernise the remaining stores by March 2016. Innovating in mobile payments
We are also upgrading our customer service, with all of our call centres As part of our drive for innovation we are developing services which across Europe now offering “24/7” service and we have expanded our allow our customers to use their smartphones to pay for goods and “self-care” solutions online and on mobile. services, using our secure network. During the year we launched Vodafone Wallet in Germany and Spain.

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European smartphone penetration % % of European mobile service revenue in-bundle %
45 45 60 58
38 51
30 40 28
15 20 data not available
0 2012 2013 2014 0 2012 2013 2014
500MB per month compared to around 350MB a year ago1
Transforming the retail experience
We are updating our stores into a common and consistent store concept. Each of our transformed stores now have a simple design allowing each store to run different promotions and host a “top 10” table with live devices, on-site “Tech Expert” support who can transfer customers’ data from their old phones to their new ones. At the same time we are retraining our staff to better serve customers.
An easier way to pay
“Contactless” payments are becoming an increasingly popular way to pay for small value transactions. We have created the Vodafone Wallet to leverage this opportunity, which allows you to pay for anything with your phone. It digitises everything in your wallet: payment cards, loyalty cards, tickets or coupons. We launched the first commercial wallet in Spain, ahead of our competitors and built the first mobile wallet in Europe, based entirely on industry standards.
Extending our reach through partner markets
Through relationships with other mobile operators around the world we have extended our reach to a further 48 countries stretching from Chile to Russia, Iceland to Brazil. These markets extend our mobile reach beyond our own mobile operations and support the global access to our services which our customers have come to expect from us.
Note:

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Unified Communications
Our roots are in mobile services, and these still represent the majority of our revenues. However, more and more businesses and individual consumers are seeking unified communications, or converged fixed and mobile services, and we are changing the shape of our Company to meet this demand. What is unified communications? However, unified communications is also a threat, particularly in the residential market, as historically we have not owned or had access
As customer demand for ubiquitous data and content grows rapidly
to next?generation fixed line infrastructure such as fibre or cable.
over the coming years, the most successful communications providers
This could allow cable operators with MVNO platforms, or integrated
will be the ones who can provide seamless high speed connectivity
fixed and mobile incumbents, to take share in the market with
at home, at work, at play and anywhere in between. This will require the
aggressively discounted offers.
integration of multiple technologies – 3G, 4G, WiFi, cable and fibre – into
a single meshed network offering the best, uninterrupted experience –
what we call “unified communications”. Progressing our strategy
Our goal is to secure access to next?generation fixed line infrastructure
Unified communications for enterprise in all our major European markets. Our approach is market-by-market,
based on the cost of building our own fibre, the openness of the
Combined fixed and mobile services have been a feature of the
incumbent provider to reasonable wholesale terms, the speed of market
enterprise market, particularly for small- and medium-sized companies,
development, and the availability of good quality businesses to acquire.
for several years. We have been a market leader with products such
The table below shows the progress we have made this year. We have
as Vodafone One Net, which provides integrated fixed and mobile
made significant strides in most of our major markets, through three
services which create significant business efficiencies for customers.
routes to market – wholesaling (or renting), our own fibre deployment,
This year we have evolved One Net as an application that can also serve
or acquisitions. In particular, the acquisition of Kabel Deutschland and
the needs of larger national corporates as well.
the proposed purchase of Ono will significantly strengthen our position
With the acquisition of Cable & Wireless Worldwide in 2012, we have in Germany and Spain respectively. At the year end, we had nine million
made a step change in our ability to offer unified communications fixed broadband customers, and the proposed acquisition of Ono will
services to customers in the UK and gained an extensive international increase this to 11 million.
footprint. After successfully integrating sales forces this year, we are now
Outside Europe, we acquired TelstraClear in New Zealand, the second
beginning to build a strong pipeline of new business.
largest fixed operator, in 2012 to strengthen our portfolio of fixed
Unified communications for consumers products and services and create a leading total communications
Over the last few years, we have seen a significant move towards company. We also intend to expand selectively high speed fibre services
bundling of fixed and mobile products for residential customers, often to urban areas in emerging markets to enable converged services
including television in the package as well. Of our markets, Spain in key business areas. And our subsidiary, Vodacom, proposes to acquire
and Portugal are the most advanced in this regard, but we expect Neotel, the second largest provider of fixed telecommunications
it to become prevalent in all our major European markets. This presents services in South Africa, for a total cash consideration of ZAR 7.0 billion
us with a clear opportunity, as our share of fixed services in our (Ł0.4 billion) to accelerate its growth in unified communications
European markets is under 10%, whereas our share of the mobile products and services.
market is well over 25%. In addition, mobile customer churn is typically
three times higher than that of customers taking combined fixed and
mobile services.
Making good progress on unified communications strategy
Our strategic approach to next-generation fixed access Our recent acquisitions
Wholesale Fibre deployment Acquisitions Data to March 2014 Kabel Ono (proposed)
Deutschland
Italy Italy Spain Market position Largest cable Largest cable
(2013) (planned for 2014) Ono (proposed 2014) operator in Germany operator in Spain
Germany Spain Germany Purchase price €10.7bn €7.2bn
(2013) (2014) Kabel Deutschland (2013) Annual revenue €1.9bn €1.6bn
Netherlands Portugal UK Homes passed 15.2m 7.2m
(2013) (2010) Cable & Wireless Total customers 8.3m 1.9m
Worldwide (2012)
New Zealand Fixed broadband 2.3m 1.6m
TelstraClear (2012) customers

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UnifiedCommunications
Our unified market-leading communications solution in Portugal
In Portugal we have developed a market?leading unified communications solution by combining our fibre?based fixed broadband, advanced internet
TV (with full cloud catch-up TV and multi-screen option – tablet, PC, smartphone) and our mobile offers. As a result we are the operator with the highest mobile net promoter score.
As part of our Project Spring programme we are accelerating the deployment of high speed fibre, which offers up to 300Mbps, to reach 1.5 million homes by mid?2015.

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Consumer Emerging Markets
It’s easy to think of Vodafone as simply a European company, with its headquarters in the UK, but the reality is that one third of our revenue comes from countries outside Europe and most of this is in fast-growing emerging markets where data demand is taking off.
Context Where we are going
a Our main emerging markets are India, South Africa, Turkey, We are aiming to drive continued growth in emerging markets Egypt, Ghana, Kenya, Qatar, Tanzania and several other southern through a differentiation-based strategy of being the “best”, by: African countries. a increasing and enhancing our base stations sites to improve voice a They provide strong growth opportunities due to fast economic and data quality and coverage; growth, young and rising populations, and low and increasing a extending fibre to enterprise customers to meet the expected mobile penetration. demand for unified communications services; a The demand for mobile data in emerging markets is beginning a expanding the branded store footprint to enhance customer to take off, in part due to the lack of alternative fixed service; and broadband infrastructure. a expanding our leading money transfer service, M-Pesa. The goal a There is significant scope for newer revenue streams, such is for it to deliver a growing proportion of our emerging market as mobile money transfer as many people in these markets have service revenue. little or no access to banking services.
Driving the mobile penetration opportunity Enhancing distribution
The number of customers in our emerging markets has grown steadily Our distribution footprint in emerging markets consists of a range and rapidly from 185 million, 57% of the Group total three years ago, of branded stores, franchised shops and small independent retail to around 302 million, representing 70% of the total today. This has been recharging units. We have modernised over 250 stores in these markets driven by fast economic growth and rising populations. In our largest and we are targeting to reach over 2,300 by 2016. Our branded stores emerging market, India, the proportion of the 1.2 billion population with are very attractive to customers wanting higher end smartphones a mobile, commonly known as mobile penetration, is still only 78%, or monthly contract plans. In Egypt 95% of new contract customers so we expect to see a lot more growth going forward. come to us through branded stores. In India we have the largest footprint of 1.7 million point of sale sites for top?ups, significantly more We have invested significantly in our emerging markets to support and than our nearest competitor, and to cater for our female customers drive this growth opportunity. We have expanded network coverage we are opening a number of new “Angel” stores, which are run and by 8% to 161,500 base station sites, providing us with significant scale managed exclusively by women. and broad coverage. We have increased the range of low cost Vodafone branded devices, enabling more people on low incomes to access Increasing access to mobile financial services mobile services. We have also lowered the cost of calls, with prices as low as one US cent per minute in India, which, along with greater Our Vodafone money transfer service, or M-Pesa as it is more network coverage, has helped drive growth in both the number users commonly known, enables people who have a standard mobile and mobile usage. phone, but with limited or no access to a bank account, to send and receive money person to person, top-up airtime, make bill payments, The data opportunity and in conjunction with the Commercial Bank of Africa to save and also receive short-term loans.
While mobile data usage to browse the internet or watch videos is increasingly common in Europe, it is still at an early stage in emerging We now have over 17 million active M-Pesa customers, an increase markets. However, it is expanding quickly due to the growth of 18% over last year. During the year we launched in several new in customers and also the greater range and affordability of handsets. emerging markets – India, Egypt, Lesotho and Mozambique. In India In India, for example, the number of data users increased by 13 million the service has now launched nationwide. Across the M-Pesa footprint, to 52 million over the course of last year. In Turkey, we now have we have over 200,000 active agents and M-Pesa processed 2.8 billion 6.5 million smartphone users, up from 3.1 million only two years transactions (up 27% year-on-year). The service is expected to deliver ago. Outside South Africa, in our smaller southern African markets a growing proportion of our emerging market revenue over the next few of Tanzania, Lesotho, Mozambique and the DRC, the number of data years. Besides providing additional revenue streams, M-Pesa also keeps customers increased 86% to 7.7 million taking the total active data customers on our networks, which reduces the proportion of customers customer base to 30% of total customers. that leave, commonly known as churn.
We continue to innovate M-Pesa, with the introduction of services such as Lipa Na M-Pesa, a retail payment proposition for consumers, and the expansion of international money transfer propositions. In March 2014 we launched the service in our first European market, Romania.

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Mobile customers % Data users in emerging markets million
100
92
Europe: 29% 75
68
50
AMAP – Australia and AMAP – emerging 26 New Zealand: 1% markets: 70% 25
0 2012 2013 2014
m 14 million in 2013
M-Pesa in Tanzania
The cost of travel prevents many people seeking the medical care they need. A local NGO, the Comprehensive Community Based Rehabilitation in Tanzania (‘CCBRT’), is working with the Vodafone Foundation to address this by integrating M-Pesa into its referral process, to ensure patients suffering from obstetric fistula get to hospital.
In 2013, 70% of CCBRT’s fistula patients came via the M-Pesa “Text to Treatment” initiative. This project is one of the world’s largest fistula repair programmes.
Data usage in South Africa
In South Africa we’re investing in newer revenue streams such as data by driving smartphone adoption and enhancing the network. During the year we supported a 24% increase in the number of active smartphones and tablets, taking the total to eight million devices. Average monthly smartphone usage increased 82% to 253MB per device and grew 25% to 743MB on tablets. We supported this growth by investing in our market-leading data network. 74% of our base stations are fitted with high capacity fibre transmission, and we can now provide 3G services to 92% of the population. We’re also ready for the future, with 4G coverage of 20% of the population today.
Egypt’s literacy programme
Vodafone Egypt Foundation launched an accredited mobile literacy app in 2013, which forms part of its Knowledge is Power initiative, supporting national efforts to tackle adult illiteracy. The app uses pictures and a talkback function to make learning easier and more flexible. The Knowledge is Power programme uses classroom and mobile learning to improve literacy skills – to date 187,000 people have enrolled.

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Enterprise
We want to build on our core strength in mobile to become the leading communications provider for businesses across the world, whether large or small. We are focused on providing a range of mobile, fixed, hosting, cloud and other business services that are simple to use, worry-free and cost-effective.
Context Where we are going
a Mobility increasingly sits at the heart of how organisations function, a We are building on our core strength in mobile and increasing how they maximise their employee productivity and how they capability in fixed to develop a portfolio of products and interact with their customers, suppliers and partners. services, based on converged fixed and mobile solutions,
Customers increasingly want more than just mobile solutions. to sell to businesses across the globe. a
Demand for unified communications and full service offerings, a Our strategy and investment is focused on: three high-growth machine-to-machine and cloud and hosting is increasing, providing product areas – unified communications, cloud and hosting exciting new growth opportunities. and machine-to-machine; and three market segments – small- and medium-sized enterprises (‘SMEs’), large and multinational corporates and carriers.
Mobile and unified communications Machine-to-Machine (‘M2M’)
While the majority of our revenue still comes from mobile, we are M2M technology connects “things” to the internet, transforming them increasingly providing unified communications services. The recent into intelligent devices that exchange real time information – in effect acquisitions of Cable & Wireless Worldwide (‘CWW’) and TelstraClear, enabling machines to talk. combined with our existing fixed assets, enabled us to accelerate growth
Our M2M business serves customers across all market sectors, with of our fixed and converged services, with 23% of our Enterprise revenue specific focus on the key growth sectors of automotive, smart metering on a management basis coming from fixed services, an increase and consumer electronic products. M2M is growing rapidly and we have of 12 percentage points over the year. increased M2M connections from 12.0 million to 16.2 million in the year.
Vodafone One Net, our flagship converged offer which combines fixed
Connections in the global M2M market are expected to grow and mobile services, is available to businesses of all sizes, from both 1 at an average of 24% per year between 2013 and 2018 . We continue small and medium up to global multinational companies and is live to be ranked as the market leader by a number of market analysts, in ten markets. including Analysys Mason and Machina Research.
Vodafone Global Enterprise (‘VGE’) Cloud and Hosting
VGE delivers total communications services to some of the
Bringing together mobile, fixed, cloud and hosting services, world’s largest multinational companies. We currently serve around we help organisations move their data and applications to the cloud, 1,700 companies and provide services in over 100 countries. transforming the way they do business. Our capabilities mean we are VGE simplifies operations for our customers by providing them with well placed to capitalise on the global growth of cloud computing and a single account and service team, a single multi-country contract, the increasing technology and procurement link between hosting, single pricing structures and a single portfolio of products and services. cloud and connectivity.
These are underpinned by our fully integrated fixed and mobile network,
With the successful integration of our CWW operations, our Cloud and cloud-based hosting platforms, machine-to-machine capability and Hosting Services business now serves more than 1,200 public sector other business services. and enterprise customers in multiple regions. Our 14 data centres in the Carrier Services UK, Ireland and South Africa are complemented by a partner network of data centre facilities that allow us to serve multinational customers Our Carrier Services division manages the commercial relationships globally. Our services include co-location, managed hosting, private and with other operators to support, in particular, international voice and public cloud services, messaging and software-as-a-service applications. data services. We are the second largest international voice carrier in the world, carrying 50 billion international voice minutes annually. We are one of the world’s largest investors in submarine cables that reach more than 100 countries. We offer a broad portfolio of carrier voice and data products and work with over 1,000 communication service providers globally.

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Vodafone enterprise service revenue on Share of Group service revenue on a management basis % a management basis 2014 %
30
27 27 Fixed: 23% 23 20
10 Mobile: 77%
0 2012 2013 2014
t basis in the UK and New Zealand now from enterprise customers
M2M services for automotive customers
We will provide automotive connectivity in new Volkswagen and Audi vehicles in Europe from next year, using an embedded SIM to provide customers with high-speed internet access on the road. We worked closely with Volkswagen to design the activation and service processes to their specific requirements.
Vodafone One Net Business
Vodafone One Net Business has helped ICT Networks in the UK reduce costs and free up its technicians’ time by providing a simple and reliable virtual desk phone via their mobile – allowing technicians who are travelling and working remotely to be more accessible and responsive to customers and colleagues.
Cloud and hosting
We will provide cloud and hosting services to global software provider Synchronoss across Europe, with the ability to expand into the
Middle East and the Asia Pacific region. Our solution leverages assets and knowledge acquired from CWW to help them deploy secure applications on a global scale.

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Network
We aim to have the best mobile network in all our markets, be competitive in fixed services and provide the best converged fixed and mobile services to support the growing demand for unified communications. We are aiming to provide our customers with a “perfect voice” call experience, and provide both high quality and broad data coverage.
Context Where we are going
a The telecoms industry continues to experience a rapid increase Our strategy is focused upon delivering a clearly differentiated, in the demand for data services, such as video streaming and market-leading network position. We will do this through: internet browsing on smartphones and tablets. a the provision of the best mobile voice and data service, by the a Across the Group data traffic increased by 64% over the last year rapid and widespread deployment of 3G and 4G, and upgrades and data now accounts for 81% of our total traffic including voice. to network backhaul infrastructure; and a Mobile and fixed network technology is continuing to evolve being competitive in the fixed market and delivering leading a providing faster data speeds and the capability to carry more data. unified communication solutions, by acquiring access a Customers are also increasingly seeking fixed and mobile to an effective mix of high speed next?generation fixed converged or unified communications propositions. network cable and fibre infrastructure.
Mobile network Europe During the year we acquired Kabel Deutschland in Germany and announced the acquisition of Ono in Spain, both of which provide Across Europe data has become an increasingly important driver of total us with high quality cable network infrastructure. The integration of traffic on our network. In the last year European data traffic increased Cable & Wireless Worldwide in the UK and TelstraClear in New Zealand by 44%, compared to 4% for voice. Video streaming and web browsing remains on track and we have made good progress on our fibre build are the most popular data applications – accounting for nearly 75% programmes in Spain and Portugal with a target to reach three million of data usage. 3G accounts for most of our data traffic, so it’s a key area and 1.5 million homes passed respectively by 2015. for investment. This is why today around two thirds of our European 3G network can now deliver peak downlink speeds of 43.2Mbps and the latest smartphone drive trials showed that we had the best or co-best Spectrum 3G data network in 15 out of 20 markets. The faster speeds offered Radio spectrum is the key raw material for our mobile business. by 4G make this increasingly attractive to our customers, shown During the year we acquired and renewed spectrum for Ł2.2 billion by a significant rise in the number of users last year to 4.7 million. in India, Romania, New Zealand and the Czech Republic, with a cash
The increasing take-up of 4G means that this now represents 18% cost of Ł0.9 billion during the year. The purchases in India will enable of total European data traffic. the provision of enhanced voice and data services including 2G, 3G and 4G across the country. We have a strong portfolio of spectrum assets Mobile network emerging markets to support the rapid deployment of 4G, with 800/900MHz frequency spectrum for deep indoor coverage and 1800/2600MHz for capacity Nearly 40% of Group mobile data is now carried across our AMAP and performance. See page 194 for more details. network, which includes our emerging markets, and by the end of the year India became the greatest data user by volume of any country within Vodafone. The scope for further data growth remains significant Project Spring with only 52 million of our 167 million customers in India having The largest part of Project Spring will be significant additional access to data, of which only seven million are 3G users. 3G usage investment in our mobile and fixed networks over the next two years is already averaging in excess of nearly 750MB per month – compared to both accelerate and clearly differentiate our network position in all to around 500MB in Europe. To meet this rapid growth in data traffic, of our markets. This is the largest network investment programme we have rolled out more than 10,500 3G and over 9,700 2G sites in India in our history. supported by more than 13,000 kilometres of fibre in the last two years.
In our European mobile networks, this will enable us to deliver Investing in fixed networks for unified communications “perfect voice” which means a call success rate of over 99%. We will As demand for unified communications and data grows we are also deliver the best 4G data experience with over 90% outdoor increasing our access to next?generation fixed line infrastructure population coverage and 90% of customer data sessions on high to support this. Through a combination of wholesale agreements, speed smartphones will be above 3Mbps. This will be supported self-build programmes and targeted acquisitions we now have by a future proofed network with over 98% of sites covered with high access to fixed line infrastructure in 17 markets (with data speeds capacity backhaul. In emerging markets, we will also deliver “perfect of up to 300Mbps in some) and we offer combined fixed and mobile voice” and will grow our 3G coverage to 95% in targeted urban areas propositions in 12 countries. in India. For our fixed customers, we will deploy fibre in Italy passing 6.4 million households, extend our fibre roll?out in Portugal to more households and build fibre coverage to support 15,000 enterprises in South Africa.

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obile operators in the world
Expanding our 4G network
Our 4G journey continues to go from strength to strength. In the last year, we launched 4G services in a further seven markets, including the UK, bringing the total to 14. 17% of the smartphones on our European network are 4G capable, and our 4G network enables customers to upload and download content two to three times faster than over 3G. This allows users to stream video content and browse the internet with less delay. By 2016 we expect to expand our 4G network to cover over
90% of the European population.
Portable network supports victims of typhoon
In November 2013, the Vodafone Foundation deployed two Instant Network to support relief efforts following Typhoon Haiyan, in the Philippines. These portable networks pack into four cases, each weighing less than 100kg. Over 29 days the networks enabled 1.4 million SMS and 443,200 calls to be made.
In February 2014, the Vodafone Foundation launched the Instant Network Mini – a “network in a backpack” weighing just 11kg, which can be deployed in ten minutes.
Network innovation
We work very closely with our network suppliers to continually develop innovative new solutions to help improve our customers’ network experience, deliver efficiencies and enable us to differentiate. During this year, we began testing and deploying several solutions, which will be available in the near future. For example, “4G carrier aggregation”, bonds together multiple spectrum blocks to increase peak data downloads speeds up to 300Mbps; and “4G Broadcast” enables an unlimited number of smartphone users, with compatible devices, to watch TV channels without putting additional load on the
4G network. We were the first operator to trial this service in Europe in February 2014.

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Operations
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.
Context Where we are going
a The challenging economic, regulatory and competitive We aim to improve operational efficiency, and to speed up and environment we face in Europe has led to declining revenues in our co-ordinate our time to market for new propositions and services, by: European businesses. a using our centralised functions more; a Inflationary pressure in emerging markets is putting upward pressure on our cost base. a driving standardisation and simplification of our business to maximise the benefits of our scale; a The trend towards greater data usage significantly increases the traffic on our network. a offshoring more business functions to shared service centres; a applying new technology to improve efficiency; and a Against this background, to protect our level of profitability, we must continue to find ways to improve operating efficiency and a reducing non-customer facing cost. simplify and standardise processes for customers.
Using our centralised functions more Offshoring functions to shared
The Vodafone Procurement Company (‘VPC’) in Luxembourg centrally service centres of expertise manages the strategic procurement of the majority of our overall spend. Our business depends on having simple and effective operations This allows us to leverage scale and achieve better prices and terms that leverage the benefits of shared service centres to support our and conditions. During the year the spend managed through the VPC operations across the globe. increased to €10.2 billion which represents around 50% of our spend, Over the past three years we have expanded the scope of shared service up from €6.9 billion in the prior year. centres in Egypt, India and Europe to provide financial, administrative,
By utilising the VPC we also learn how to apply best practice across IT, customer operations and human resource services for all of our different spend categories. For example, by applying techniques from markets. In 2012, we had just 9,5001 shared centre employees and this how we manage the software licences for our data centres under has now risen to over 13,300, and has expanded to cover commercial a single contract to how we buy software for our network operations, activities for our Enterprise business and customers. Our shared services we have achieved a 30% reduction in prices compared to what our are delivering cash cost savings at an annualised run-rate of about markets were achieving in isolation. Ł180 million. We expect to have around 16,000 employees in shared
Standardisation and simplification services by 2016.
In the UK, we completed the first phase of a programme to simplify Applying new technology to improve efficiency our organisation and improve all of our IT systems for billing, customer We have been at the forefront of Single RAN (Radio Access relationship management, and online and retail services. All prepaid Network) technology that enables the combination of 2G, 3G and customers services have migrated from legacy IT systems to one new 4G technologies into the same radio equipment. This has a number integrated platform. This has resulted in simplification of our tariffs and of cost benefits including reduced floor space requirements on?site improved end-to-end order processing times. We have also upgraded which reduces our site rentals, and efficient power technology provides all our retail points of sale to make the sales and logistics processes savings our energy bill. Single RAN units are now present in 45% of our simpler for our staff. All of this means a better experience for customers. sites and we plan to expand this to 69% by 2016.
We have reduced the number of ways of returning a handset to eight, and through our rationalisation programme we are reducing our Reducing non-customer facing costs consumer price plans from nearly 5,000 to under 500.
While we continue to expand our employee base in customer facing positions, we have been able to make savings across administrative support positions in Europe. On balance this has led to a decrease in the number of employees in Europe (excluding our acquisitions of Kabel Deutschland and the minority stake in Vodafone Italy) and an increase in the number of employees in AMAP.

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Deploying Single Radio Access Network sites % of total Moving employees to shared services helps reduce costs to reduce costs
60 15,000
13,300
10,700
40 45 10,000 9,500 34
20 24 5,000
0 2012 2013 2014 0 2012 2013 2014
ons operating ex
Sharing network sites to reduce costs
Nearly three quarters of the new radio sites deployed across the Group during the year were shared with other mobile operators, which reduces the cost of renting or building new sites by about 20% compared to non-shared units. During the year we entered into new sharing arrangements in three markets – Greece, Romania and Italy.
Virtualising our network
We are increasingly looking at ways to virtualise our network through cloud computing. This requires us to move our existing network capabilities from dedicated hardware onto virtualised applications running over the cloud. As a result we are able to simplify our network architecture and reduce costs. Virtualised networks are more scalable and resilient, and enable the faster deployment of new services. With this capability, we have started rolling out new features such as a messaging platform for our M2M products, and many more are planned.
Helping our customers cut costs
We estimated that our products and services in smart metering and logistics, fleet management, call conferencing, and cloud and hosting services, could save our customers 2.29 million tonnes of carbon dioxide equivalent (‘CO2e’) – almost equal to our total emissions last year.

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Contributing economic improvement to social and
Telecommunications technology has the power to transform people’s lives. Ensuring that we continue to connect more people to essential services, while expanding the reach of our network, is the best way we can support that improvement.
Telecommunications technology can be used to tackle some of the The issue of government surveillance has come under increased most pressing challenges faced by society today. Our products and scrutiny. For the first time we have published a Law Enforcement services provide access to a range of solutions to these challenges Disclosure report, which sets out our approach to responding to law in areas including financial services, healthcare and education. enforcement demands for access to customer information, together
We remain determined to continue to contribute to the social and with information about intelligence agency and authority demands economic development of all our customers and particularly our on a country-by-country basis, where statistical data can lawfully 302 million customers who live in emerging markets, while ensuring be disclosed. we continue to fulfil our strategic business goals.
Vodafone is a member of the Telecommunications Industry Dialogue How we achieve our goals is integral to the long-term success of the on Freedom and Privacy of Expression, which in March 2013 launched business. We remain fully committed to operating ethically and a two-year collaboration with the Global Network Initiative (‘GNI’) responsibly in everything we do. This includes ensuring we respect and a set of Guiding Principles, which address the issues of privacy and our customers’ human rights, improving ethical and environmental freedom of expression as they relate to the telecommunications sector. standards in our supply chain and managing our energy use, while remaining proactive in our response to emerging sustainability risks. Supporting ethical practices in the supply chain This report highlights our progress in four critical areas. We continue to work with our suppliers and others in our industry to raise ethical, labour and environmental standards in our supply Connecting people to vital services chain, through an enhanced code of ethical purchasing. In 2014, we conducted 30 rigorous audits of both new and existing suppliers and
Mobile money continues to be a driver of financial inclusion, offering
38 through the Joint Audit Co-operation (‘JAC’), in collaboration with people access to payments and financial services beyond the nine other telecommunications operators. reach of traditional institutions. Our platform, M-Pesa, expanded its geographical reach in 2014, launching recently in Mozambique, This year, we published our first Conflict Minerals report in response
Lesotho, Egypt, Romania and India. to US Securities and Exchange Commission requirements. Our policy requires our suppliers to take steps to ensure that minerals used M-Pesa now has 17 million active users who can access a wide range to finance conflict in the Democratic Republic of Congo (‘DRC’) of services that enhance their ability to improve their livelihoods, or neighbouring countries do not end up in our products and we are including the ability to pay bills and even be paid their salary via M-Pesa. working through industry initiatives to continue to tackle this issue. A new savings and loan product, launched in conjunction with the Commercial Bank of Africa, enables M-Pesa users to save and access Saving energy and cutting carbon loans, often for the very first time.
We are a top-rated global communications service provider for the The M-Pesa platform supports our efforts in many other areas, including machine-to-machine (‘M2M’) industry. Using our M2M solutions helps our aim to increase productivity and improve the lives of 500,000 our enterprise customers to cut carbon emissions and generate cost smallholder farmers in Africa, through the Connected Farmer Alliance savings. We estimated the carbon savings we deliver for customers from initiative. Our first formal partnership with Kilombero Plantations our M2M products and services, call conferencing and cloud and hosting, Limited, in Tanzania, tested how mobile technology could support the to be a total of 2.29 million tonnes of carbon dioxide equivalent (‘CO2e’) Company’s engagement with smallholder rice farmers. We are also in 2013 – almost equal to our total emissions. By March 2014, we had piloting our solution with a dairy cooperative in Kenya, to help them run contracts to provide nearly 14 million M2M connections with carbon-more efficiently, increasing productivity and incomes for the members reducing potential in smart metering, fleet management and logistics. who supply the cooperative with milk.
Though we continue to extend the reach of our network to more Protecting our customers’ information customers, who are using increasing amounts of data, our own carbon and respecting their privacy footprint has remained almost stable and we remain committed to reduce it as far as possible through energy efficiency measures.
The amount of data and personal information transmitted over our
The efficiency of our operations has greatly improved with emissions per networks is increasing, as our customers use their mobile and other base station now at ten tonnes CO2e, almost 40% lower than in 2007. connected devices more and more. Our commitment to protect that Our total carbon emissions in 2014 were 2.55 million tonnes of CO2e, information and respect their right to privacy and freedom of expression a slight increase on 2013 due to newly acquired operations. remains critical in retaining their trust.
We can only ensure our customers’ privacy if we first ensure the security of their information and communications. Cyber security threats Want to find out more? continue to proliferate, so Vodafone’s Global Security Operations Centre Read our sustainability report 2013–14, for more information monitors our IT systems 24 hours a day, seven days a week, to anticipate on Vodafone’s contribution to social and economic development. or detect attacks and minimise their impact. vodafone.com/sustainability/report2014

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Energy use 20141,2 GWh Carbon emissions2 Millions of tonnes CO2e

2.55
2.36 2.23

Network: 4,690

0 2012 2013 2014 n Scope 1 (direct greenhouse gas (‘GHG’) emissions) n Scope 2 (indirect GHG emissions)
Notes:

e Foundations in 2013 – including Ł5.9 million towards its operating costs. Since its inception, Vodafone has donated over Ł475 million to the charitable programmes led by our Foundations.
Connected Women
Vodafone’s Connected Women Summit focused on the impact of mobile technology on the lives of women around the world. New research, commissioned by the Vodafone Foundation, looked at the social and economic impact of extending women’s access to mobile phones. The Connected Women report found that stabilising the gender gap in our markets could have an economic benefit for women and society of more than US$22.3 billion annually from 2020.
Supporting victims of domestic violence
TecSOS, from the Vodafone Foundation, rapidly connects victims of domestic violence to emergency services. Now available in six European markets, it has helped more than 31,900 victims. In the UK, TecSOS is used by over 50% of police forces – it won the
Metropolitan Police Commissioner’s Award for Best Use of Technology and was granted a “Secured by Design” licence, which recognises TecSOS as a high quality service to be used by the police.
Instant Education
The Vodafone Foundation opened the first “Instant Network School” in the DRC in 2013, in partnership with Italian NGO, Don Bosco. The Vodafone Foundation’s Instant Network Schools programme is supported by the Qatar Foundation’s “Educate a Child” initiative. The school, in Goma, is enabling 400–500 children aged 7–17 to access online educational content via tablets provided through the Instant Network mobile education programme.

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One company, local roots
We believe our people are fundamental to our success – that’s why we want to attract and retain exceptional employees. We’re committed to providing an inclusive workplace where we offer great opportunities for our people to build their skills and careers.
We continue to develop our people to ensure that they have the right skills and experience to deliver an outstanding experience to our customers.
During the year we employed an average of 92,812 people Creating a lean and effective organisation and had 97,721 employees as of March 2014. The number
We continue to make our business more efficient, simplifying processes of our people increased during the year following our acquisition across our markets and sharing best practice. We continue to move of Kabel Deutschland in Germany and the move to full ownership transactional and back office activities to our shared service centres of Vodafone Italy. in Egypt, India and Europe. In the last year we undertook an exercise The following sections highlight our progress in the key areas behind to reduce our non-customer facing support functions, as discussed our people strategy. on page 32.
We aim to treat all employees fairly, consulting with those affected Increasing employee engagement by change and clearly communicating developments. We support Every year all our employees participate in our global People Survey employees through organisational changes, finding people new jobs which allows us to measure engagement levels, compare ourselves in the company or arranging for them to work for a partner company to other large companies and helps us identify ways to improve how where possible. We also help those whose roles are made redundant we do things. search for new jobs, offering them training on job applications and interview skills, and advice on how to start their own business. Our employee engagement index measures how committed our employees are, their desire to continue working for us and their During the year we completed the integration of employees from Cable willingness to recommend Vodafone as an employer. The index & Wireless Worldwide and we established single product management remained broadly stable at 77 points this year compared to 78 last year. teams for consumer and enterprise.
Crucially we retained our top quartile position. Our employee turnover rate also remained broadly stable at 15%. Strengthening capabilities
We want people to grow their careers at Vodafone and develop the skills Embedding The Vodafone Way and talent needed to grow our business. We do this through formal The Vodafone Way is about ensuring our employees work with speed, training, on the job experience and regular coaching from managers. simplicity and trust so that we can be customer-obsessed, ambitious We conduct an annual analysis of learning needs to identify priorities and competitive, innovation-hungry and work as one company with and ensure that learning plans support our business strategy. Every local roots. employee also has a formal review once a year with their manager For the third consecutive year we have run development workshops to review their performance and set clear goals and development plans for all senior employees with a particular focus on ensuring we provide for the year ahead. a superior experience to all our customers.
Our global learning academies in marketing, technology, sales, retail,
Building a diverse and inclusive culture finance and supply chain enable people to develop the critical skills
We believe that a diverse team is crucial to our success, helping us better they need to excel in their functions. We work with leading business understand and meet the needs of our customers. Our Group-wide schools and accredited external providers to develop and deliver the diversity and inclusion strategy aims to create a working environment training. Last year, around 180,000 online courses were completed and which values, celebrates and makes the most of individual differences. we trained around 18,000 people in our Technology Academy and over 10,000 people in our Retail and Sales academies.
We do not condone unfair treatment of any kind and offer equal We conduct regular talent reviews to identify high-potential future opportunities in all aspects of employment and advancement leaders and accelerate the progress of high-potential managers through regardless of race, nationality, gender, age, marital status, sexual our “Inspire” programme, which offers development and executive orientation, disability, and religious or political beliefs. This also applies coaching over an 18 month period and may include an assignment to agency workers, the self-employed and contract workers who work to another Vodafone market or function. for us. We promote an open culture that encourages people to raise Our “Discover” programme for graduates accelerates the careers of high issues to ensure that any behaviour which excludes or discriminates performing graduates and we recruited 596 people from 20 countries against individuals does not go unchallenged. This year’s People Survey onto this programme during the year. We also have an international showed that 89% of employees believe that Vodafone treats people assignment programme, “Columbus”, with 35 graduates from fairly, regardless of their gender, background, age or beliefs. 16 different markets taking part this year.

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Valuing diversity
At the end of the year we had 61,848 (63%) male and 35,873 (37%) female employees and we have increased female representation at all levels of the business, particularly within more senior roles. Women now make up 22% of our senior leadership team (our 223 most senior managers) – an improvement on last year but we still have work to do. We also increased the number of women on our Executive Committee to two.
Recognising performance Creating a safe place to work
We maintained our approach of rewarding people based on their Driving a culture where safety is an integral part of every business performance, potential and contribution to our success. We benchmark decision is critical to our vision of preventing any incidents that could roles regularly to ensure competitive, fair remuneration in every country affect the health and safety of our people. We continue to work hard in which we operate. We also offer competitive retirement and other to ensure employees and contractors know how to identify and manage benefit provisions which vary depending on conditions and practices risks and take personal responsibility for their own safety and the safety in local markets. of those around them.
Global short-term incentive plans are offered to a large percentage We have a wide range of programmes and systems to tackle our key of employees and global long-term incentive plans are offered to our risks, often tailored to the particular needs of each market. Despite this, senior managers. Individual and company performance measures we greatly regret to report that 12 people died while undertaking work are attached to these plans which give employees the opportunity on behalf of Vodafone last year. Strengthening programmes to target to be rewarded for exceptional performance as well as ensuring that occupational road risk – one of our biggest risks and the main cause we do not reward poor performance. of these fatalities – remains a major focus for all local markets.
Doing what’s right Through increased awareness and a strong focus on managing our top five safety risks, our injury rates have continued to decline in 2014.
We have a “Code of Conduct” that sets out our business principles and The safety culture in Vodafone continues to mature – our latest what we expect from employees to ensure they protect themselves People Survey showed that 89% of employees believe that our as well as the Company’s reputation and assets. We actively promoted “Absolute Rules”, which help employees follow best practice for safety, our Code of Conduct throughout the year via our global “Doing are taken seriously.
What’s Right” campaign. The aim was to improve understanding of and engagement with key topics including health and safety, anti-bribery, privacy, security and competition law to ensure that people know what’s expected of them and managers know what is expected of their teams.

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		39

 

 

Group ¹

			2014 £m				Restated 2013 £m	1
Revenue			38,346				38,041
Service revenue			35,190				34,999
Other revenue			3,156				3,042
Adjusted EBITDA 2			11,084				11,466
Adjusted operating profit 2			4,310				5,590
Impairment loss			(6,600	)			(7,700	)
Restructuring costs and other			(355	)			(311	)
Amortisation of acquired customer bases and brand intangible assets			(551	)			(249	)
Other income/(expense)			(717	)			468
Operating loss			(3,913	)			(2,202	)
Non-operating income and expense			(149	)			10
Net financing costs			(1,208	)			(1,291	)
Income tax credit/(expense)			16,582				(476	)
Profit/(loss) for the financial year from continuing operations			11,312				(3,959	)
Profit for the financial year from discontinued operations			48,108				4,616
Profit for the financial year			59,420				657

Notes:

1	2014 results reflect average foreign exchange rates of £1: € 1.19 and £1:US$1.59 (2013: £1: € 1.23 and £1:US$1.58).

2	Adjusted EBITDA and adjusted operating profit have been restated to exclude restructuring costs . Adjusted operating profit has also been redefined to exclude amortisation of customer base and brand intangible assets. See page 201 for “Non-GAAP financial information”.

 

 

Net debt

Net debt decreased £11.7 billion to £13.7 billion as proceeds from the disposal of our US group, whose principal asset was its 45% stake in Verizon Wireless, positive free cash flow and favourable foreign exchange movements more than offset the acquisition of Kabel Deutschland, licences and spectrum payments and equity shareholder returns including equity dividends, the special distribution and share buybacks. In Q4, we paid £2.4 billion in relation to the expected tax liability for the Verizon Wireless transaction, of which US$3.3 billion (£2.0 billion) was paid to Verizon. We now expect this liability to total US$3.6 billion (£2.2 billion).

Performance against 2014 financial year guidance ²

On 2 September 2013 we issued pro forma guidance for the 2014 financial year, which excluded VZW and included 100% of Vodafone Italy, both for the whole year. This pro forma guidance included Vodafone’s remaining joint ventures (Australia, Fiji and Indus Towers), on an equity accounting basis, consistent with IFRS requirements.

Based on guidance foreign exchange rates, our pro forma adjusted operating profit for the 2014 financial year was £4.9 billion ² , in line with the around £5.0 billion range set in September 2013. On the same basis our pro forma free cash flow was £4.8 billion ² , in line with our guidance range of £4.5–£5.0 billion.

2015 financial year guidance ³

		Adjusted EBITDA £bn				Free cash flow £bn
2015 financial year guidance			11.4–11.9				Positive

We expect adjusted EBITDA to be in the range of £11.4 billion to £11.9 billion.

We expect free cash flow to be positive after all capex, before the impact of M&A, spectrum purchases and restructuring costs. Total capex over the next two years is expected to be around £19 billion, after which we anticipate capital intensity normalising to a level of 13–14% of annual revenue.

/s/ Nick Read

Nick Read

Chief Financial Officer

 

 

Notes:

*	All amounts in this document marked with an “*” represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. See page 202 “Non-GAAP financial information” for further details.

1	Please see page 201 for “Non-GAAP financial information”.

2	Guidance foreign exchange rates for the year ended 31 March 2014 were £1: € 1.17, £1=US$1.52, £1:INR 84.9 and £1:ZAR 14.3.

3

We have based guidance for the 2015 financial year on our current assessment of the global macroeconomic outlook and assume foreign exchange rates of £1: € 1.21, £1:INR 105.8 and £1:ZAR 18.4. It excludes the impact of licences and spectrum purchases, 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 EBITDA by £60 million and have no material impact on free cash flow. A 1% change in the Indian rupee to sterling exchange rate would impact adjusted EBITDA by £10 million and free cash flow by £5 million. A 1% change in the South African Rand to sterling exchange rate would impact adjusted EBITDA by £15 million and free cash flow by £5 million. Guidance for the year ending 31 March 2015 includes the results of Vodafone’s remaining joint ventures (Australia, Fiji and Indus Towers) on an equity basis, consistent with IFRS requirements.

 

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40		Vodafone Group Plc Annual Report on Form 20-F 2014
		Operating results

 

 

This section presents our operating performance, providing commentary on how revenue and adjusted EBITDA performance of the Group and its operating segments within the Europe and AMAP regions, together with Common Functions, have developed over the last year. These revenue and adjusted EBITDA amounts are extracted from note 2 to the Consolidated Financial Statements. See pages 171 to 175 for commentary on the 2013 financial year. The presentation of segmental revenues and adjusted EBITDA within note 2 to the Consolidated Financial Statements segment is under the management basis as this is assessed as being the most insightful presentation and is how the Group’s operating performance is reviewed internally by management. See “Non-GAAP information” on page 201 for further information on the use of management basis measures and reconciliations between the management basis measures and the statutory (IFRS) basis.

Group level operating performance is discussed on pages 38, 39 and 97.

Europe on a management basis

 

		Germany £m				Italy £m				UK £m				Spain £m				Other Europe £m				Eliminations £m				Europe £m				Restated 2013 £m								% change
																																		£				Organic
Year ended 31 March 2014
Revenue			8,272				4,312				6,427				3,518				5,525				(57	)			27,997				28,602				(2.1	)			(9.3	)
Service revenue			7,739				3,863				6,095				3,230				5,104				(54	)			25,977				26,501				(2.0	)			(9.1	)
Other revenue			533				449				332				288				421				(3	)			2,020				2,101				(3.9	)			(10.8	)
Adjusted EBITDA			2,698				1,536				1,418				787				1,736				–				8,175				9,099				(10.2	)			(18.3	)
Adjusted EBITDA margin			32.6%				35.6%				22.1%				22.4%				31.4%								29.2%				31.8%

 

			Organic change %				Other activity pps	1			Foreign exchange pps				Reported change %
Revenue – Europe			(9.3	)			4.7				2.5				(2.1	)
Service revenue
Germany			(6.2	)			9.0				3.6				6.4
Italy			(17.1	)			2.2				3.1				(11.8	)
UK			(4.4	)			31.9				–				27.5
Spain			(13.4	)			(0.7	)			3.1				(11.0	)
Other Europe			(7.1	)			(17.5	)			1.8				(22.8	)
Europe			(9.1	)			4.6				2.5				(2.0	)
Adjusted EBITDA
Germany			(18.2	)			10.2				3.3				(4.7	)
Italy			(24.9	)			2.2				2.8				(19.9	)
UK			(9.8	)			26.9				0.1				17.2
Spain			(23.9	)			(1.8	)			2.8				(22.9	)
Other Europe			(14.0	)			(6.2	)			2.1				(18.1	)
Europe			(18.3	)			5.6				2.5				(10.2	)
Note:
1     “Other activity” includes the impact of M&A activity and the revision to intra-group roaming charges from 1 April 2013. Refer to “Organic growth” on page 202 for further detail.

 

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Germany

Service revenue decreased 6.2%*, with a slightly improving trend in Q4 compared to Q3. Performance for the year was driven by intense price competition in both the consumer and enterprise segments and an MTR cut effective from December 2012, with Vodafone particularly impacted due to our traditionally high ARPU. In a more competitive environment we launched both a more aggressive 3G price plan (“Smart”) and pushed otelo in the entry-level contract segment. Mobile in-bundle revenue increased 2.7%* as a result of growth in integrated Vodafone Red offers, which was more than offset by a decline in mobile out-of-bundle revenue of 22.6%*. We continue to focus on Vodafone Red and 4G where we had nearly 3.0 million customers and 891,000 consumer contract customers respectively at 31 March 2014.

Adjusted EBITDA declined 18.2%*, with a 4.3* percentage point decline in adjusted EBITDA margin, driven by lower service revenue and increased customer investment.

The roll-out of 4G services continued with a focus on urban areas, with overall outdoor population coverage of 70% at 31 March 2014, which combined with our ongoing network enhancement plan has resulted in a significant improvement in voice and data performance in the second half of the year.

Following its acquisition on 14 October 2013, KDG contributed £702 million to service revenue and £297 million to adjusted EBITDA in Germany. The domination and profit and loss transfer agreement was registered on 14 March 2014 and the integration of Vodafone Germany and KDG began on 1 April 2014.

Italy

Service revenue declined 17.1%* driven by the effect of the summer prepaid price war penetrating the customer base and the negative impact of MTR cuts effective from January and July 2013. Mobile in-bundle revenue grew

15.2%* driven by the take-up of integrated prepaid plans. Vodafone Red, which had nearly 1.5 million customers at 31 March 2014, continues to penetrate further into the base leading to improving churn in the contract segment.

Enterprise revenue growth, while still negative, showed signs of improvement during the year thanks to the success of “Zero”. Prepaid experienced a steep ARPU decline as a result of the market move to aggressive bundled offers. 4G services are now available in 202 municipalities and outdoor coverage has reached 35%.

Fixed line revenue declined 3.2%* as a result of declining fixed voice usage, partly offset by continued broadband revenue growth supported by 77,000 net broadband customer additions during the year. Vodafone Italy now offers fibre services in 37 cities and is progressing well on its own fibre build plans.

Adjusted EBITDA declined 24.9%*, with a 4.8* percentage point decline in adjusted EBITDA margin, primarily driven by the lower revenue, partially offset by strong efficiency improvements delivered on operating costs which fell 7.1%*.

UK

Service revenue decreased 4.4%*, principally driven by declines in enterprise and prepaid and a 1.9 percentage point impact from MTR cuts, partially offset by consumer contract service revenue growth. Mobile in-bundle revenue increased 0.6%* as the positive impact of contract customer growth and greater penetration of Vodafone Red plans into the customer base, with nearly 2.7 million customers at 31 March 2014, offset pricing pressures. Mobile out-of-bundle revenue declined 7.2%*, primarily driven by lower prepaid revenue.

The activity to integrate the UK operations of CWW was accelerated successfully and we continue to deliver cash and capex synergies as planned. The sales pipeline is now growing, which we expect to materialise into revenue increases in the 2015 financial year.

The roll-out of 4G services continued following the launch in August 2013, with services now available in 14 cities and over 200 towns, with over 637,000 4G enabled plans (including Mobile Broadband) at 31 March 2014. We are making significant progress in network performance, particularly in the London area.

Adjusted EBITDA declined 9.8%*, driven by lower revenue and a 1.0* percentage point decline in the adjusted EBITDA margin as a result of higher customer investment.

Spain

Service revenue declined 13.4%*, as a result of intense convergence price competition, macroeconomic price pressure in enterprise and a MTR cut in July 2013. Service revenue trends began to improve towards the end of the year. As a result of a stronger commercial performance and lower customer churn from an improved customer experience, the contract customer base decline slowed during the year and the enterprise customer base remained broadly stable. Mobile in-bundle revenue declined 0.4%* driven by the higher take-up of Vodafone Red plans, which continue to perform well, with over 1.2 million customers at 31 March 2014. We had 797,000 4G customers at 31 March 2014 and services are now available in all Spanish provinces, 227 municipalities and 80 cities.

Fixed line revenue declined 0.2%* as we added 216,000 new customers during the year and added 276,000 homes to our joint fibre network with Orange. On 17 March 2014 we agreed to acquire Grupo Corporativo Ono, S.A. (‘Ono’), the leading cable operator in Spain and the transaction is, subject to customary terms and conditions including anti-trust clearances by the relevant authorities, expected to complete in calendar Q3 2014.

Adjusted EBITDA declined 23.9%*, with a 3.4* percentage point decline in adjusted EBITDA margin, primarily driven by the lower revenue, partly offset by lower commercial costs and operating cost reductions of 9.4%*.

Other Europe

Service revenue declined 7.1%* as price competition and MTR cuts resulted in service revenue declines of 5.6%*, 8.4%* and 14.1%* in the Netherlands, Portugal and Greece respectively. However, Hungary and Romania returned to growth in H2, and all other markets apart from Portugal showed an improvement in revenue declines in Q4.

In the Netherlands mobile in-bundle revenue increased by 3.4%*, driven by the success of Vodafone Red plans. In Portugal, the broadband customer base and fixed line revenues continued to grow as the fibre roll-out gained momentum in a market moving strongly towards converged offers, whilst in Greece the customer base grew due to the focus on data. In Ireland, contract growth remained good in a declining market.

Adjusted EBITDA declined 14.0%*, with a 2.1* percentage point reduction in the adjusted EBITDA margin, driven by lower service revenue, partly offset by operating cost efficiencies.

 

 

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42		Vodafone Group Plc Annual Report on Form 20-F 2014
		Operating results (continued)

 

 

Africa, Middle East and Asia Pacific on a management basis

																						Restated
		India £m				Vodacom				Other AMAP				Eliminations				AMAP				2013								% change
						£m				£m				£m				£m				£m				£				Organic
Year ended 31 March 2014
Revenue			4,394				4,718				5,860				(1	)			14,971				15,413				(2.9	)			8.4
Service revenue			3,927				3,866				5,295				(1	)			13,087				13,729				(4.7	)			6.1
Other revenue			467				852				565				–				1,884				1,684				11.9				27.4
Adjusted EBITDA			1,397				1,716				1,567				–				4,680				4,532				3.3				16.2
Adjusted EBITDA margin			31.8%				36.4%				26.7%								31.3%				29.4%

 

 

			Organic change %				Other activity pps	1			Foreign exchange pps				Reported change %
Revenue – AMAP			8.4				0.7				(12.0	)			(2.9	)
Service revenue
India			13.0				–				(11.7	)			1.3
Vodacom			4.1				(2.8	)			(13.7	)			(12.4	)
Other AMAP			2.8				4.0				(9.4	)			(2.6	)
AMAP			6.1				0.7				(11.5	)			(4.7	)
Adjusted EBITDA
India			26.4				–				(13.7	)			12.7
Vodacom			6.6				0.2				(16.1	)			(9.3	)
Other AMAP			19.3				3.2				(10.7	)			11.8
AMAP			16.2				1.0				(13.9	)			3.3

Notes:

1	“Other activity” includes the impact of M&A activity and the revision to intra-group roaming charges from 1 April 2013. Refer to “Organic growth” on page 202 for further detail.

India

Service revenue increased 13.0%*, driven by continued customer growth and data usage as well as improved voice pricing. Mobile customers increased by 14.2 million during the year, yielding a closing customer base of 166.6 million at 31 March 2014.

Data usage grew 125% during the year, primarily resulting from a 39% increase in mobile internet users and a 67% increase in usage per customer. At 31 March 2014 active data customers totalled 52 million including seven million 3G customers.

We progressively rolled out M-Pesa across India over the year, reaching nationwide coverage by March 2014.

Adjusted EBITDA grew 26.4%*, with a 3.3* percentage point increase in adjusted EBITDA margin, driven by the higher revenue and the resulting economies of scale on costs.

In February, Vodafone India successfully bid for additional spectrum in 11 telecom circles in the Indian Government’s 900MHz and 1800MHz spectrum auction, enabling the company to provide customers with enhanced mobile voice and data services across the country. Of the total £1.9 billion cost of these spectrum licences, £0.5 billion was paid during the financial year with the remainder payable in instalments starting in 2017.

Vodacom

Service revenue grew 4.1%*, driven by strong growth in Vodacom’s mobile operations outside South Africa. In South Africa, organic service revenue increased 0.3%*, despite the adverse impact of an MTR cut, due to the strong growth in data revenues of 23.5%*, driven by higher smartphone penetration and the strong demand for prepaid bundles.

Vodacom’s mobile operations outside South Africa delivered service revenue growth of

18.9%* mainly from continued customer base growth. M-Pesa continued to perform well and is now operational in all of the Vodacom mobile operations outside of South Africa, with over 4.4 million customers actively using the service.

Adjusted EBITDA increased 6.6%*, driven by revenue growth, optimisation in customer investment and efficiencies in South Africa operating costs. The adjusted EBITDA margin decline of 0.3* percentage points is the result of higher sales of lower margin handsets.

On 14 April 2014, Vodacom announced the acquisition of the Vodacom customer base from Nashua, a mobile cellular provider for South African mobile network operators, subject to the approval of the Competition Authority.

On 19 May 2014 Vodacom announced that it had reached an agreement with the shareholders of Neotel Proprietary Limited (‘Neotel’), the second largest provider of fixed telecommunications services for both enterprise and consumers in South Africa, to acquire 100% of the issued share capital in, and shareholder loans against, Neotel for a total cash consideration of ZAR 7.0 billion (£0.4 billion). The transaction remains subject to the fulfilment of a number of conditions precedent including applicable regulatory approvals and is expected to close before the end of the financial year.

 

 

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Other AMAP

Service revenue increased 2.8%*, with growth in Turkey, Egypt, Qatar and Ghana being partially offset by declines in Australia and New Zealand.

Service revenue growth in Turkey was 7.9%* after a 5.4 percentage point negative impact from voice and SMS MTR cuts effective from 1 July 2013. Mobile in-bundle revenue in Turkey grew 25.0%* driven by higher smartphone penetration, the success of Vodafone Red plans and continued growth in enterprise.

In Egypt service revenue increased 2.6%*, driven by the growth in the customer base, higher data usage and a successful pricing strategy. Service revenue growth in Qatar came as a result of strong net customer additions and the success of segmented commercial offers. In Ghana, service revenue grew 19.3%*, driven by an increase in customers and higher data usage in both consumer and enterprise.

Adjusted EBITDA grew 19.3%* with a 3.1* percentage point improvement in adjusted EBITDA margin, with improvements in Turkey, Australia, Qatar and Ghana driven by the increase in scale and operating cost efficiencies, and with robust contribution from Egypt, partially offset by a decline in New Zealand.

Our joint venture in Australia experienced a service revenue decline of 9.0%*. The turnaround plan remains on track, yielding improved levels of network performance, net promoter score and customer base management. The adjusted EBITDA margin was improved by 14.8* percentage points, as a result of restructuring and stronger cost discipline.

Our associate in Kenya, Safaricom, increased service revenue by 17.2% driven by a higher customer base and continued growth in M-Pesa.

Non-Controlled Interests on a management basis

Verizon Wireless ^1,2

		2014 £m				2013 £m
Revenue			9,955				21,972
Service revenue			9,000				19,697
Other revenue			955				2,275
Adjusted EBITDA			4,274				8,831
Interest			(20	)			(25	)
Tax 2			(50	)			13
Group’s share of result in VZW			3,169				6,500

Notes:

1	All amounts represent the Group’s share based on its 45% partnership interest, unless otherwise stated. Results for the year ended 31 March 2014 only include results to 2 September 2013, the date the Group announced its intention to dispose of its 45% interest.

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.

On 2 September 2013 Vodafone announced it had reached an agreement with Verizon Communications Inc. to dispose of its US group whose principal asset was its 45% interest in Verizon Wireless. The Group ceased recognising its share of results in Verizon Wireless on 2 September 2013, and classified its investment as a held for sale asset and the results as a discontinued operation. The transaction completed on 21 February 2014.

Operating loss

Adjusted operating profit excludes certain income and expenses that we have identified separately to allow their effect on the present results of the Group to be assessed (see page 201). The items that are included in operating loss but are excluded from adjusted operating profit are discussed below.

Impairment losses of £6,600 million (2013: £7,700 million) recognised in respect of Germany, Spain, Portugal, Czech Republic and Romania. Further detail is provided in note 4 to the Group’s consolidated financial statements.

Restructuring costs of £355 million (2013: £311 million) have been incurred to improve future business performance and reduce costs.

Amortisation of intangible assets in relation to customer bases and brands are recognised under accounting rules after we acquire businesses and amounted to £551 million (2013: £249 million). Amortisation charges increased in the year as a result of the acquisition of KDG and Vodafone Italy in the year.

Other income and expense comprises a loss of £0.7 billion arising largely from our acquisition of a controlling interest in Vodafone Italy. The year ended 31 March 2013 includes a £0.5 billion gain on the acquisition of CWW.

Including the above items, operating loss increased to £3.9 billion from £2.2 billion as lower impairment charges were offset by lower revenue, higher customer costs and higher amortisation.

Net financing costs

		2014 £m				2013 £m
Investment income			346				305
Financing costs			(1,554	)			(1,596	)
Net financing costs			(1,208	)			(1,291	)

Net financing costs have decreased 6.4% primarily due to the recognition of mark-to-market gains, offset by a £99 million loss (2013: £nil) on the redemption of US$5.65 billion bonds as part of the restructuring of the Group’s financing arrangements following the disposal of Verizon Wireless and lower interest income on settlement of tax issues.

 

 

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44		Vodafone Group Plc Annual Report on Form 20-F 2014
		Operating results (continued)

 

 

Taxation

		2014 £m				2013 £m
Income tax expense:
Continuing operations before recognition of deferred tax			2,736				476
Discontinued operations			1,709				1,750
Total income tax expense			4,445				2,226
Recognition of additional deferred tax – continuing operations			(19,318	)			–
Total tax (credit)/expense			(14,873	)			2,226

The recognition of the additional deferred tax assets, which arose from losses in earlier years, was triggered by the agreement to dispose of the US group whose principal asset was its 45% interest in VZW, which removes significant uncertainty around both the availability of the losses in Germany and the future income streams in Luxembourg. The Group expects to use these losses over a significant number of years; the actual use of these losses is dependent on many factors which may change, including the level of profitability in both Germany and Luxembourg, changes in tax law and changes to the structure of the Group.

 

		2014 £m				2013 £m
Total tax (credit)/expense			(14,873	)			2,226
Profit before tax
– Continuing operations			(5,270	)			(3,483	)
– Discontinued operations			49,817				6,366
Total profit before tax			44,547				2,883
Effective tax rate			-33.4%				77.2%

The statutory effective tax rate for the year ended 31 March 2014 was -33.4% compared to 77.2% in the prior year. The difference is primarily due to the gain on disposal of our interest in Verizon Wireless which did not result in any tax consequences and the recognition of significant deferred tax assets in Luxembourg and Germany.

Discontinued operations

On 2 September 2013 the Group announced it had reached an agreement with Verizon Communications Inc. to dispose of its US group whose principal asset was its 45% interest in VZW. The Group ceased recognising its share of results in VZW on 2 September 2013, and classified its investment as a held for sale asset and the results as a discontinued operation. The transaction completed on 21 February 2014.

The table below sets out all of the elements relating to this discontinued operation within the consolidated income statement.

 

		2014 £m				2013 £m
Share of result in associate			3,191				6,422
Net financing income/(costs)			27				(56	)
Profit before taxation			3,218				6,366
Taxation relating to performance of discontinued operations			(1,709	)			(1,750	)
Post-tax profit from discontinued operations			1,509				4,616

The table below sets the gain on disposal of discontinued operations.

 

		2014 £m				2013 £m
Gain on disposal of discontinued operations before tax			44,996				–
Other items arising from the disposal			1,603				–
Net gain on disposal of discontinued operations			46,599				–
Profit for the financial year from discontinued operations			48,108				4,616

 

 

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Table of Contents

Identifying and managing our risks We have a clear framework for identifying and managing risk, both at an operational and strategic level. Our risk identification and mitigation processes have been designed to be responsive to the ever-changing environments in which we operate.

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Governance
49 Chairman’s overview
50 Board of directors and Group management
54 Corporate governance
69 Directors’ remuneration

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C hairman’s overview

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