Vodafone Group Plc Group Vodafone Vodafone Group Plc Annual Report For the year ended 31 March 2011 Annual Report for the yearMarch ended 2011 31 Vodafone Group Plc Registered Office Vodafone House The Connection Newbury Berkshire RG14 2FN England Registered in England No. 1833679 Telephone: +44 (0) 1635 33251 Fax: +44 (0) 1635 238080 www.vodafone.com Contact details Investor Relations Telephone: +44 (0) 7919 990230 Email: [email protected] Website: www.vodafone.com/investor Media Relations Telephone: +44 (0) 1635 664444 Email: [email protected] Website: www.vodafone.com/media Sustainability Email: [email protected] Website: www.vodafone.com/sustainability Delivering a more valuable Vodafone, the Vodafone logo, Vodafone Mobile Broadband, The Vodafone Way, Vodafone Always Vodafone Best Connected, TeleTu and Tele2, Vodafone TV, Vodafone WebBox, M-PESA, Vodafone One Net, Vodafone Sure Signal, Vodafone Mobile Connect and Vodacom are trade marks of the Vodafone Group. World of Difference and Mobiles for Good are trade marks of the Vodafone Foundation. RIM and BlackBerry are registered with the US Patent and Trademark Office and may be pending or registered in other countries. Microsoft, Windows Mobile and ActiveSync are either registered trade marks or trade marks of Microsoft Corporation in the US and/or other countries. Google, Google Maps and Android are trademarks of Google Inc. Apple, iPhone and iPad are trade marks of Apple Inc., registered in the US and other countries. Other product and company names mentioned herein may be the trade marks of their respective owners. The content of our website (www.vodafone.com) should not be considered to form part of this annual report or our annual report on Form 20-F. Copyright © Vodafone Group 2011 Group highlights for the 2011 financial year This report has been printed on Revive 75 Special Silk paper. The composition of the paper is 50% de-inked post consumer waste, 25% pre-consumer waste and 25% virgin wood fibre. It has been certified according to the rules of the Forest Stewardship Council (FSC). It is manufactured at a mill that has been awarded the ISO14001 certificate for environmental management. The mill uses £45.9bn £11.8bn £7.0bn 370.9m 8.90p pulps that are elemental chlorine free (ECF) and totally chlorine free (TCF) process and the inks used Revenue Adjusted operating profit Free cash flow Mobile customers Total dividends are all vegetable oil based. 3.2% growth 3.1% growth 2.7% decrease 14.5% growth 7.1% growth Printed at St Ives Westerham Press Ltd, ISO14001, FSC certified and CarbonNeutral®. Designed and produced by Addison, www.addison.co.uk Vodafone Group Plc Annual Report 2011 1 Highlights of the year Contents Business review# ■ Group revenue increased 3.2% to £45.9 billion with a strong result 2 About us from emerging markets and signs of renewed growth in some parts 4 Vodafone at a glance 6 Chairman’s statement of Europe. 8 Mobile telecommunications industry ■ Adjusted operating profit rose 3.1% to £11.8 billion, supported 10 Chief Executive’s review by a good performance from our US associate, Verizon Wireless. 12 Strategy in action 28 Key market review ■ Free cash flow of £7.0 billion, reflecting consistent levels of capital 30 Sustainable business expenditure and strong working capital performance. 32 People Performance# ■ £14.2 billion expected to be raised from agreed disposals of interests 34 Operating results in China Mobile (China), SoftBank (Japan) and, after year end, 44 Guidance 45 Principal risk factors SFR (France). and uncertainties 47 Financial position ■ Total dividends per share of 8.90 pence, up 7.1% in line with our dividend and resources per share growth target. £6.8 billion committed to share buybacks. Governance# 52 Board of directors and Group management 55 Corporate governance Our new strategy 62 Directors’ remuneration In November 2010 we unveiled an updated strategy to move Financials us from ‘A Stronger Vodafone’ to ‘A More Valuable Vodafone’. 74 Contents The new strategy is composed of four main elements: 75 Directors’ statement of responsibility# Focus on key areas of growth potential 76 Audit report on internal controls Mobile data, emerging markets, enterprise, total 77 Critical accounting estimates communications and new services. 79 Audit report on the consolidated financial Deliver value and efficiency from scale statements 80 Consolidated financial Using our size and scale to drive cost efficiencies statements and operational effectiveness. 125 Audit report on the Company financial statements Generate liquidity or free cash flow from non-controlled interests 126 Company financial Releasing liquidity and free cash flow from minority stakes statements and investments. Additional information 132 Shareholder information# Apply rigorous capital discipline to investment decisions 139 History and development# 140 Regulation# Allocating capital to maximise shareholder value. 143 Non-GAAP information# 146 Form 20-F cross Find out more on pages 12 to 27 reference guide 148 Forward-looking statements 149 Definition of terms 151 Selected financial data # These sections make up the directors’ report. 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. Unless otherwise stated references: to ‘year’ or ‘2011’ mean the financial year ended 31 March 2011; to ‘2010’ or ‘previous year’ mean the financial year ended 31 March 2010; to the ‘third quarter’, ‘previous quarter’ or ‘Q3’ are to the quarter ended 31 December 2010; and to the ‘fourth quarter’ or ‘Q4’ are to the quarter ended 31 March 2011. All amounts marked with an ‘(*)’ represent organic growth which presents performance on You can visit our online annual report at: a comparable basis, both in terms of merger and acquisition activity and foreign exchange rates. Definitions of terms used throughout the report www.vodafone.com/investor can be found on page 149. This report is dated 17 May 2011. 2 Vodafone Group Plc Annual Report 2011 About us A business intent on meeting all our customers’ communication needs D istri but ion Technologies and resources Licences and spectrum Customers Licences and spectrum enable us to deliver fixed T The latest technologies and mobile communications services in certain e International customer markets. During the year we acquired additional c offering our best customer h base with diverse needs licences and spectrum in several markets, experience n including India for third generation (‘3G’) o We have an international customer services and Germany for the provision of l base in both developed and Network infrastructure fourth generation (‘4G’) or ‘LTE’ services, to o emerging markets with over g We have one of the largest mobile footprints in enhance the speed, coverage and quality 370 million mobile customers in s i e the world with more than 224,000 base station of voice and data services in those markets. more than 30 countries. During e s sites. During the year our networks carried the year we added over 40 million c i a around 850 billion minutes of voice traffic Strategic agreements customers, mostly in India. We serve v n (equivalent to 208 minutes per month, per We work closely with some of the world’s r customer) and 161 petabytes of data equivalent leading companies to deliver innovative d e S to downloading over 1,400 three minute video products and services to our customers. r Customers by markets (%) clips every second. Our agreements with Samsung, Google®, e s ® Microsoft , HTC and others have enabled us o 17 India Network performance to be first to market with cutting-edge smart u 5 36 Vodacom We continue to invest around £6 billion a year devices. We now distribute the Apple iPad in the r 5 Germany c 6 to maintain leadership of our networks. Tests UK and to our enterprise customers in Europe. e Egypt s 9 show that in the Europe region, Vodacom and For enterprise customers, in partnership with 10 12 Italy Egypt, Vodafone offers peak user data downlink Microsoft we provide the Microsoft Online suite UK speeds which are on average 40% faster than which provides hosted email, conferencing Spain our best competitors. and collaboration services. In conjunction with Other RIM® and Nokia, Vodafone customers using Research and development (‘R&D’) smartphones will be able to securely pay for We drive innovation through new technologies applications via their Vodafone bill. and enhancements to existing capabilities. This year R&D expenditure amounted to Brand £287 million. According to Brand Finance plc, the Vodafone s brand has risen to become the fifth most ice Customer support technologies valuable brand in the world. In the 2010 calendar Dev Our billing and customer relationship year we renewed our title partnership with the management systems are being enhanced Vodafone McLaren Mercedes Formula One team. to enable our customers to manage a single It has been a strong year for the sponsorship account, with a single bill, for multiple devices with increased television viewing figures and or for several people. greater exposure. People Employees by activity (%) Customer service We employed approximately 83,900 people We are redesigning and worldwide during the year, compared to 85,000 17 Customer care and administration improving our customer the previous year. Operations care, retail presence and 49 Selling and distribution online service to ensure 34 that customers get the best data experience with Vodafone. Business review Business Review Vodafone Group Plc Annual Report 2011 3 Distribution Indirect channels The level of indirect distribution varies between A broad range of channels markets and may include using third party through which customers can service providers, independent dealers, access our services and products distributors and retailers. Online Direct channels The internet has also become an increasingly We directly own and manage about 2,200 stores powerful and cost-effective distribution channel.