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Activities & results - Our Financial Performance

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‘Getting the numbers’

With our five-pillar strategy we want to create a sustainable and financially sound company. We want to deliver a solid financial performance in terms of operating revenue, margins and cash flow, which results in a growing market share and improved profitability. In this manner we can guarantee our continuity for our shareholders, customers and other stakeholders.

What do we see happening around us and what does this mean for us?

The Netherlands as a whole is slowly getting back on track
After years of crisis most of the major macroeconomic indicators are green, but the after-effects are still present in many sectors as we still see significant reorganisations and bankruptcies. In the corporate market, however, we have noted through aspects such as international roaming, that the Netherlands as a whole is getting back on track. We also note that companies are embracing the potential of digital communication as there are many innovations and applications around, e.g. apps and M2M solutions. Unfortunately revenue in the sector as a whole is still down, however.

The Netherlands has one of the most advanced telecommunications sectors
Despite the economic downturn and disappointing earnings, the telecommunications industry continues to invest in infrastructure. We have for instance increased our investments in 2014 to achieve national rollout of 4G in September 2014. Investments by the sector as a whole ensure that the Netherlands has one of the most advanced communication networks in Europe. An advanced telecommunications sector is a major contributor to the economy as telecommunications can help achieve efficiency, environmental benefits and new business opportunities. This leads to more prosperity at lower costs and reduced pollution. See also the ‘Netherlands Telecom report’.

Data usage is ever increasing
Increased consumer confidence, boosted by rising house prices and low inflation, has an affect on use of mobile devices by consumers. Smartphone penetration is 76% and more than 60% of the Dutch population also has a tablet (as on December 2014). The need for mobile data has never been so high and it is still increasing. 4G, new phones with larger screens and video services such as Netflix are contributing to this. We are also responding to this by offering new services like Vodafone Wallet and through promotions with Netflix and Napster.

Increasing competition
Competition is on the up in the traditional mobile domain as Tele2 is busy constructing a 4G mobile network. Internet players such as Google, Apple and Facebook are also introducing services such as text messaging and voice. This has an impact on our revenues and as a result our focus is shifting from call time and SMS to data. Despite this development we have seen a small increase in call time. Growing consumer confidence means that ‘no frill’ growth has become stagnant. That is a positive aspect for our Vodafone propositions and less positive for our Hollandsenieuwe propositions.

There is also competition on the fixed market. Broadband penetration through fixed networks in the Netherlands is 90%. KPN focuses more on quad play and Liberty Global is getting ready to create a nationwide cable company with Ziggo. We launched our own nationwide fixed proposition ‘Vodafone Thuis’ [Vodafone at Home], which allows to compete with KPN and cable companies outside of fibre optics.

Relatively low telephony prices
Despite the high quality of the network, mobile telephony prices in the Netherlands are not seen internationally as being very high. Intense competition in the market ensures that ISPs are always trying to do more and to be better than the competition.

Legal and regulatory developments that can impact our position and profits

  • In August 2014 College van Beroep voor het bedrijfsleven (CBb) [Appeals Board for the Private Sector] annulled a decision of the Autoriteit Consument & Markt (ACM) [Consumer and Market Authority ] to cap mobile termination tariffs at € 1.019 per minute. Until the appeal the current maximum rate amounts to € 1.861 per minute. The ruling of the European Court of Justice is expected in 2016, after which the CBp can make its final decision. Until that time uncertainty remains regarding mobile termination tariffs.
  • On 1 April 2015 ACM filed a draft decision to the European Commission for ensuring that competitors of KPN such as Vodafone can gain access to KPN’s network. This leads to a wider choice and lower prices for consumers and companies with regards to internet access, fixed telephony and corporate network services. In early May the European Commission indicated that they have serious concerns regarding the manner in which ACM defined the market and the manner in which the dominant position of KPN has been established. ACM will consider what adjustments are needed, in consultation with the Commission. If ACM is not willing to adapt the decision in line with the wishes of the Commission, the Commission holds the right to veto. For as long as the new decision is not final yet, the current arrangement is maintained that KPN is obliged to allow access to competitors. A decision that KPN would no longer be obliged to grant access to competitors could have major implications for competition in the fixed telecommunications market and Vodafone’s position as a provider of fixed services.
  • The Dutch government wants to extend the existing 2100 MHz licenses that are to expire at the end of 2016. An extension for a period of 4 years (2017-2020) would allow for a simultaneous auction of the 700 MHz bandwidth. The amounts to be paid for the extension have not been announced yet. The amounts will probably be partly based on amounts paid in 2012 for the frequencies in the multi-bandwidth auction. Only after completion of the renewal procedure will it become clear what will happen with the 2100 MHz bandwidth.
  • In April 2014 the European Parliament (EP) adopted a modified version of the proposal by the European Commission to put an end to retail roaming charges by 2016. The EP is calling for ‘Roam like at Home’ rates by 15 December 2015. This means that customers pay home tariffs, while roaming up to a specific limit, after which they will have to pay regulated roaming rates. Regulated wholesale rates are also being revised. In March 2015 the EU Member States made a similar proposal that would have to be implemented in July 2016. It is not clear yet how the roaming regulation will look in the end: the European Parliament, the Member States and the European Commission still have to reach agreement in this regard. Until then there is uncertainty about future rules relating to roaming.
  • The Supreme Court has ruled that a combined offer of mobile services with a mobile phone or tablet must be considered as consumer credit. This could potentially have a high impact on compliance costs, VAT and current business models.
  • An extensive debate is also taking place in Brussels about potential European rules regarding net neutrality. Given the differences of opinion between the European institutions it is not yet clear whether an agreement will be reached. If European legislation is introduced in this area it will probably take the place of Dutch regulations on net neutrality.

>How do we involve our stakeholders?
>How do we determine the material issues?

How do we respond to these developments?

In order to establish a growing market share and improved profitability, we must retain and attract customers. We can do this in part by offering a high-quality network, which requires substantial levels of investment. During the past financial year we made the following investments:

  • Through additional investments (‘Spring’ Project) on top of regular investments, we were able to accelerate our 4G network rollout.
  • We also launched 4G+ in 110 municipalities in the Netherlands to further improve speed and customer satisfaction. We also invested in the voice network, supported by HD Voice, to improve the network experience.
  • In October we launched a fixed internet service with national coverage for consumers with ‘Vodafone Thuis’ [Vodafone at Home]. We are renting fibre optic lines from KPN at present and we are building our own fibre optic network. Since end of March we are technically capable of reaching 1 million households.
  • Strategic investment in the acquisition and integration of Nexct helped us to further expand our range of communications solutions for business customers.

How do we make progress on our goals?

TABEL_07_Onze_Financiele_Prestatie_UK

* At the time of publication of this report, the audit of the financial figures was not yet finalized.

What were the results in 2014-2015?

INFOGR_27_Resultaten_financiele_cijfers_UK

* At the time of publication of this report, the audit of the financial figures was not yet finalized.

Remuneration in 2014-2015

Remuneration
The remuneration and pension costs of current and former members of the total Management Board amounted to €4.9 million (FY2014: €4.2 million), of which €1.5 million for the Statutory Management Board (FY2014: €1.4 million). The overview below provides information on the remuneration of the Management Board in total for FY 2015.

TABEL_08_Onze_Financiele_Prestatie_UK

The crisis tax is excluded in the remuneration of the Management Board over FY2015 as this is no longer imposed by the Dutch tax authorities. In FY2014 the crisis tax was €0.3 million, of which €0.2 million was related to the Statutory Management Board.

Stock option rights on ordinary shares of Vodafone Group Plc. for the Management Board
In the financial year 2014-2015 no stock option rights on ordinary shares Vodafone Group Plc. were granted to members of the Management Board. In previous years members of the Management Board were granted stock option rights on ordinary shares in Vodafone Group Plc. These stock option rights were granted under the Vodafone Group 1998 Share save Scheme and the Vodafone Group Plc. 1999 Long- Term Stock Incentive Plan. The Vodafone Group Plc. 1999 Long-Term Stock Incentive Plan includes the Global Employee Option Plan.

Under the Vodafone Group Plc. 1999 Long-Term Stock Incentive Plan, options were granted at an exercise price equal to the market value of the shares on the day prior to the date of grant of the options. Exercise of these options is subject to achievement of a performance condition. These stock options have a ten year term and vesting will be after three years with the opportunity to measure performance again after years four and five from a fixed base year. To the extent that the performance condition has not been satisfied at the end of the five-year performance period, the options will forfeit.

At March 31, 2015 current and former members of the Management Board held 18,049 stock option rights on ordinary shares Vodafone Group Plc. at a weighted average exercise price of £1.75 (March 31, 2014: 18,049 stock option rights on ordinary shares Vodafone Group Plc. at a weighted average exercise price of £1.75).

Share awards over Vodafone Group Plc. Shares for the Management Board
In the financial year members of the Management Board received share awards of 864,965 ordinary shares Vodafone Group Plc (FY2014 share awards of 569,930 ordinary shares in Vodafone Group Plc). Under the Vodafone Group Long-Term Incentive Plan, share awards confer a contingent right to receive Vodafone Group shares after a three-year period. The total P&L effect of the share based payments is €2.4 million (March 31, 2014: €3.1 million).

TABEL_09_Onze_Financiele_Prestatie_UK

Remuneration for the Supervisory Board
The members of the Supervisory Board (SB) do not receive any remuneration (the same for the 2013-2014 financial year). On 31 March 2015 none of the members of the SB held ordinary shares in Vodafone Libertel BV (March 31, 2014: nil). Within Vodafone Group no expenses have been recharged to Vodafone Libertel B.V. for the members of the Supervisory Board.

How do we look back on our results?

Our total revenue decreased from €1,893 million to €1,872 million. This is a decrease of 1.1%. This was mainly caused by one-off revenues, e.g. sales of handsets and accessories. Total revenue is operational revenue plus revenue from handset and accessory sales. The revenue trend stabilised compared to the previous year, when total revenue decreased by 5.2%. Operational revenue increased by 0.2% compared to the previous year from €1,718 million to €1,723 million

Successful implementation of our segmentation strategy, the large retail footprint and our competitive propositions and focus on content, e.g. Netflix and Napster, have resulted in stabilisation of the average revenue per user. Our nationwide 4G coverage and network quality also stimulated growth in data use. Favourable macroeconomic conditions, such as growth of the Gross Domestic Product, increased consumer confidence and the end of the mobile termination rates, also contributed to revenue stabilisation.

Our revenue stabilised compared to the previous year.

Revenue also continued to grow in fixed-line services. This resulted in incremental revenues of € 13 million (equal to 20.3% growth). The main drivers behind the growth were an increase in the consumer customer base, increasing demand for OneNet and converged penetration into the enterprise market.

Our gross profit decreased from € 575 million in 2014 to € 567 million in 2015, which is a decrease of 1.5%. The gross profit margin decreased from 30.4% in 2014 to 30.3% in 2015.

Our operating profit decreased from € 190 million in 2014 to € 144 million in 2015. This is a decrease of 24.5%. Revenue decline partly contributed to decrease in operating profit. Continued customer investment in mobile acquisition and retention and in consumer fixed has led to a lower operating profit. The operating profit margin decreased from 10.1% in 2014 to 7.7% in 2015.

Net profit decreased from €111 million to €87 million. This was caused by the decrease in operating profit mainly due to a significant increase of the operating expenses.

Free cash flow (net cash flow after investment activities) amounted to € 12.2 million positive, compared with € 3.3 million positive in the previous financial year. Additionally, Vodafone made a distribution payment of €200 million and loan repayment of €80 million in this fiscal year.

What is the effect on our environment?

In the past 40 years about 25% of economic growth in the Netherlands was the direct or indirect result of opportunities offered by the telecommunications sector. 80% of this has been achieved through economic activities made possible by mobile technology. The remaining 20% is due to direct investment by telecommunications operators in people and technology. These investments, innovation and contribution to cost savings mean that telecommunications is a real driver of economic growth. Telecommunications also creates a more flexible and mobile society (source: www.staatvantelecom.nl)

Vodafone also contributes in other ways to the Dutch economy. We:

Not all tax data over 2014/2015 are known. In 2013/2014 we paid a total of approximately € 111.5 million in direct taxes to the Dutch government. Read more about our transparency regarding taxes in the ‘Transparency Report’.

About 25% of economic growth in the Netherlands was the direct or indirect result of opportunities offered by the telecommunications sector.

What are the prospects for coming year?

Prospects remain challenging in light of the current economic environment. Besides this, we expect competition to increase from cable operators and low frill players for the coming years. Vodafone expects that the mobile service revenue market growth will be less negative compared to this year.

However, Vodafone expects to be well positioned to grasp market share with our current and updated tariff portfolio. Vodafone also believes to be able to gain share in the fixed-line markets in both Enterprise as Consumer segment. The company will continue to invest in its 4G and 3G network capacity and coverage.

Research and development continues to be partly invested in by Vodafone Group Plc. for the benefit of their subsidiary companies such as Vodafone Libertel B.V.

This article is composed by Sybolt Boersma
Sybolt-Boersma
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