TIDMVOD
RNS Number : 5453O
Vodafone Group Plc
01 June 2020
1 June 2020
Vodafone Group Plc ("Vodafone" or the "Company")
Publication of the 2020 Annual Report
Vodafone will today publish on the Company's website its Annual
Report for the year ended 31 March 2020 (the '2020 Annual Report'.
The Annual Report is available at vodafone.com/ar2020.
In compliance with Listing Rule 9.6.1 of the UK Financial
Conduct Authority ('FCA'), the 2020 Annual Report will in due
course be available for inspection at data.fca.org.uk.
In accordance with FCA's Disclosure Guidance and Transparency
Rule 6.3.5, the Appendix to this announcement contains a
description of the principal risks and uncertainties affecting the
Group, related party transactions and a responsibility
statement.
A condensed set of Vodafone's financial statements and
information on important events that have occurred during the
financial year ended 31 March 2020 and their impact on the
financial statements were included in Vodafone's final results
announcement released on 12 May 2020. That information, together
with the information set out below, which is extracted from the
2020 Annual Report, constitute the material required by Disclosure
Guidance and Transparency Rule 6.3.5 which is required to be
communicated to the media in full unedited text through a
Regulatory Information Service. This announcement is not a
substitute for reading the full 2020 Annual Report. Page and note
references in the text below refer to page numbers in the 2020
Annual Report and notes to the financial statements.
APPIX
PRINCIPAL RISK FACTORS AND UNCERTAINTIES
A description of the principal risks and uncertainties that the
Company faces is extracted from pages 62 to 71 of the 2020 Annual
Report.
Managing uncertainty in our business
Our risk management framework enables a consistent approach to
the identification, management and oversight of risks. This
consistency is valuable as it allows us to take a holistic approach
to risk management and to make meaningful comparisons of the risks
we face and how we manage them across our footprint, which is
essential to achieve our strategic objectives.
Identifying our risks
Using our global risk management framework, all local markets
and Group entities identify the risks that could affect their
strategy and operations in order to implement risk mitigation
plans. These risks are then consolidated into a Group-wide view and
presented to a representative selection of our senior leaders and
executives, who add their own input on strategic, functional and
emerging risks. We then define which emerging risks warrant being
added to our risk watchlist and monitored for their impact on the
organisation.
Furthermore, we evaluate the completeness of our risk landscape
by benchmarking against comparable companies in our peer group.
After final consolidation, the proposed principal risks and risk
watchlist are reviewed and approved by our Executive Committee
('ExCo') before being submitted to the Audit and Risk Committee and
the Board.
Managing our risks
Each principal risk is assigned an executive owner who is
accountable for setting the target tolerance level. The executive
owner is responsible for confirming adequate controls are in place
and that the necessary action plans are implemented to bring the
risk profile within an acceptable tolerance. To provide adequate
oversight, we report throughout the year on principal and emerging
risks, and hold in-depth reviews of all principal risks at
different oversight committees. Figure 1 presents an overview of
our process and governance structures, including the Audit and Risk
Committee and Board.
We develop severe but plausible scenarios for all risks. These
scenarios not only provide insights into possible threats and
points of failure, allowing us to react and adjust our strategy
accordingly, but are also used for the purpose of assessing our
viability (page 71).
Strengthening our framework
Over the course of the year, we have:
- Further enhanced and driven adoption of our global risk tool,
allowing us to have a single source of risk and assurance data;
- Continued to develop the link between risk and budgeting to
inform the capital allocation reviews in a timely manner;
- Implemented a process for tracking action plans to manage our principal risks; and
- Continued with our engagement programme to develop our global risk community.
Key improvement projects underway consist of:
- Enhancing our approach to assessing the impact of emerging
risks by evaluating long-term scenarios;
- Improving the way we collect and treat early signals in the
internal and external environment by embedding the use of risk
indicators;
- Continuing to align with TCFD by assessing the impact of the
climate-related risks and opportunities to meet future
requirements; and
- Further enhancing our risk processes reflecting lessons
learned from the COVID-19 pandemic to be better prepared in the
future.
Our principle risks
We categorised our risks into four different areas to provide
the appropriate level of governance and oversight to effectively
manage these risks.
Strategic - The influence of stakeholders and industry players
on our business and our response to them:
A. Adverse political and regulatory measures - Political
pressures and new regulatory measures impact our strategy or
profitability
B. Geo-political risk in the supply chain - Global trade wars
and security concerns impact our supply chain
C. Market disruption - New telecom operators entering the
market/price wars reduce margins
D. Disintermediation - Loss of customer relevance to the big
technology players through emerging technology
Financial - Our financial status, standing and continued
growth:
E. Global economic disruption - Disruption caused by global
external events, such as pandemics, that impacts our financial
performance
Technological - The network and IT systems that support our
business and the data they hold:
F. Cyber threat and information security - External or internal
attack resulting in service unavailability or data breach
G. Technology failure - Failure of critical services and
applications causing service disruption
Operational - The ability to achieve our optimal business
model:
H. Digital transformation - Failure to deliver business and IT
transformation targets in a timely and efficient manner
I. Strategic transformation - Failure to deliver expected
business value from our existing portfolio, and new acquired
assets, or joint ventures
J. Legal and regulatory compliance - Non-compliance with
applicable laws and regulations
Our principal risks and interdependencies
We continue to consider risks both individually and collectively
in order to fully understand our risk landscape. By analysing the
correlation between risks, we can identify those that have the
potential to cause, impact, or increase another risk and that these
are weighted appropriately. This exercise informs our scenario
analysis, particularly the combined scenario used in the Long-Term
Viability Statement (page 71).
We have considered COVID-19 (a key element of risk E - global
economic disruption) which could lead to a long-term global
recession and other operating constraints that may have a knock-on
effect on several of our principal risks.
Additionally, we added health pandemic to our watchlist risks,
as we seek to learn from the current crisis so that we are better
prepared in the future.
Global economic disruption
Risk owner: Margherita Della Valle
Year-on-year risk movement: Increased
Risk category: Financial
What is the risk:
Any major economic disruption could result in reduced demand for
our services and lower spending power for our consumers, affecting
our profitability and cash flow generation. Economic disruption can
also impact financial markets, including currencies, interest
rates, borrowing costs and the availability of debt financing.
How we manage it:
We have a long average life of debt which minimises re-financing
requirements, and the vast majority of our interests costs are
fixed. We maintain sufficient liquidity resources so that we can
cope for a prolonged period of time without accessing the capital
markets.
Our target tolerance:
We need to take a conservative approach to managing financial
risks.
Scenario:
A severe contraction in economic activity leads to lower cash
flow generation for the Group and disruption in global financial
markets impacts our ability to refinance debt obligations as they
fall due.
Emerging threats:
Because this is an externally driven risk, the threat
environment is continually changing.
External factors such as the COVID-19 pandemic are currently
creating a severe contraction in economic activity across all our
markets. The financial markets are currently experiencing high
levels of volatility and the availability and cost of financing may
change significantly.
Cyber threat and information security
Risk owner: Johan Wibergh
Year-on-year risk movement: Stable
Risk category: Technological
What is the risk:
An external cyber-attack, insider threat or supplier breach
could cause service interruption or the loss of confidential data.
Cyber threats could lead to major customer, financial, reputational
and regulatory impacts across all of our local markets.
How we manage it:
We protect Vodafone and our customers from cyber threats by
continuing to strengthen global and local security controls.
Our target tolerance:
Our risk tolerance is to avoid a material cyber breach, loss of
data or reputational impact. Security underpins our commitment to
protecting our customers with reliable connections and keeping
their data safe.
Scenario:
Scenarios could include attacks on individual markets, parts of
our network or large-scale intrusions spanning multiple markets.
Each year we model a different severe but plausible scenario.
Emerging threats:
Cyber risk is constantly evolving in line with technological
advances and geo-political developments. We anticipate threats will
continue from existing sources, but also evolve in areas such as
IoT, supply chain, quantum computing and the use of AI and machine
learning.
Geo-political risk in supply chain
Risk owner: Joakim Reiter
Year-on-year risk movement: Stable
Risk category: Strategic
What is the risk:
We operate and develop sophisticated infrastructure in the
countries in which we are present. Our network and systems are
dependent on a wide range of suppliers internationally. If there
was a disruption to the supply chain, we might be unable to execute
our plans and we, the industry, would face potential delays to
network improvements and increased costs.
How we manage it:
We are closely monitoring the political situation around our key
suppliers. We are also engaging with governments, experts and
suppliers to remain fully informed so that we can respond
accordingly and comply with the latest regulations, economic
sanctions and trade rulings.
Our target tolerance:
We have a diverse range of supplier relationships and we manage
these closely with our procurement specialists. We have a
multi-vendor strategy in place across our markets to mitigate
against supply chain disruption.
Scenario:
There is disruption to our supply chain due to unilateral
decisions affecting vendor-choices or decisions that affect trade
and supply chains.
Emerging threats:
We operate in a global environment where political landscape
changes could have an effect on our operations.
Adverse political and regulatory measures
Risk owners: Joakim Reiter and Margherita Della Valle
Year-on-year risk movement: Stable
Risk category: Strategic
What is the risk:
Operating across many markets and jurisdictions means we deal
with a variety of complex political and regulatory landscapes. In
all of these environments, we can face changes in taxation,
political intervention and potential competitive disadvantage. This
also includes our participation in spectrum auctions.
How we manage it:
We address issues openly with policy makers and regulatory
authorities to find mutually acceptable ways forward.
Our target tolerance:
We aim to have strategies that are based on common objectives
with political, policy and regulatory stakeholders so as to reduce
the risk that our business will be undermined by unpredictable and
disproportionate political and regulatory environments and
interventions.
Scenario:
Exposure to additional liabilities by regulatory authorities or
if tax laws were to adversely change in the markets in which we
operate.
Emerging threats:
There is a risk that regulation will become more diverse (and
therefore more difficult to manage) as different countries, and a
variety of regulators within countries, introduce new regulations
for emerging technology such as AI, IoT and net neutrality.
Technology failure
Risk owner: Johan Wibergh
Year-on-year risk movement: Stable
Risk category: Technological
What is the risk:
Major incidents caused by natural disasters, deliberate attacks
or an extreme technology failure, although rare, could result in
the complete loss of key sites in either our data centres or our
mobile/fixed networks causing a major disruption to our
service.
How we manage it:
Unique recovery targets are set for essential assets to limit
the impact of service outages. A global policy supports these
targets with requisite controls to provide effective
resilience.
Our target tolerance:
Our customer promise is based on reliable availability of our
network, therefore the recovery of key mobile, fixed and IT
services must be fast and robust.
Scenario:
The loss of critical assets in our networks or IT infrastructure
causing a service disruptions impacting our ability to provide
service to our customers.
Emerging threats:
We could be impacted by an increase in extreme weather events
caused by climate change which may increase the likelihood of a
technology failure.
New assets inherited from acquired businesses may not be aligned
to our target resilience level which may increase the likelihood of
a technology failure.
Strategic transformation
Risk owners: Dr Hannes Ametsreiter and Vivek Badrinath
Year-on-year risk movement: Increase
Risk category: Operational
What is the risk:
We are undertaking a large-scale integration of new assets
across multiple markets. If we do not complete this in a timely and
efficient manner, we would not see the full benefit of planned
synergies and could face additional costs or delays to completion.
The successful integration also requires that an important number
of technology platforms/services are migrated on time before the
termination of the transitional services agreements.
We also have a number of joint ventures in operation and must
ensure that these operate effectively.
How we manage it:
Integration specialists and local teams are implementing the
many projects and activities that constitute the integration
plan.
We have robust governance in place to manage our joint ventures
effectively.
Our target tolerance:
Since strategic transformation is critical to our future, our
tolerance for this risk is low.
Scenario:
Delay in the integration of a major acquisition means we cannot
realise the benefits as quickly as planned.
Emerging threats:
As we increase the pace at which we transform our business there
is an emerging risk that unless managed carefully different
transformation initiatives could negatively impact each other.
Market disruption
Risk owner: Ahmed Essam
Year-on-year risk movement: Decreased
Risk category: Strategic
What is the risk:
New entrants with lean models could create pricing pressure. As
more competitors launch unlimited bundles there could be price
erosion. Our market position and revenues could be damaged by
failing to provide the services that our customers want.
How we manage it:
We closely monitor the competitive environment in all markets,
and react appropriately.
Our target tolerance:
We aim to continue to be competitive in our markets. We are
evolving our offers and adopting agile commercial models to
mitigate competitive risks using simple, targeted offers, smart
pricing models and differentiated customer experience.
Scenario:
Aggressive pricing, accelerated MVNO losses and disruptive new
market entrants in key European markets result in greater customer
churn and pricing pressures impacting our financial position.
Emerging threats:
Because this is an externally driven risk, the threat
environment is continually changing.
Digital transformation
Risk owners: Ahmed Essam and Johan Wibergh
Year-on-year risk movement: Decrease
Risk category: Operational
What is the risk:
Failure in digital or IT transformation projects could result in
loss business, a poorer customer experience and reputational
damage.
How we manage it:
We track individual programmes against our clearly defined
objectives and target KPIs throughout the lifecycle of our
projects. The aim is to identify new threats then manage and
mitigate them.
Our target tolerance:
We need to deliver these transformations programmes with the
correct mix of efficient systems, relevant skills and digital
expertise in alignment with the original planned spend and business
benefits.
Scenario:
Failure to deliver business benefits causes cost escalation,
budget overruns and increased customer churn which could negatively
impact our financial performance.
Emerging threats:
The digital transformation strategy considers emerging threats
and factors.
Disintermediation
Risk owner: Ahmed Essam
Year-on-year risk movement: Stable
Risk category: Strategic
What is the risk:
We face increased competition from a variety of new technology
platforms which aim to build alternative communication services or
different touch points, which could potentially affect our customer
relationships. We must be able to keep pace with these new
developments and competitors while maintaining high levels of
customer engagement and an excellent customer experience.
How we manage it:
We continually strive to introduce innovative propositions and
services while evolving our customer experience to deepen the
relationship with our customers. Our strategy focuses on
simplifying our offer portfolios and accelerating our digital
transformation, for a better customer experience.
Our target tolerance:
We offer a superior customer experience and continually improve
our offering through a wide set of innovative products and
services. We also develop innovative new products and explore new
growth areas such as 5G, IoT, convergence, digital services and
security so that we continue to meet our customers' needs.
Scenario:
Emerging technology impacts our market share.
Emerging threats:
Emerging risks include the development of new connectivity
systems that compete with our networks.
Legal and regulatory compliance
Risk owner: Rosemary Martin
Risk movement: Stable
Risk category: Operational
What is the risk:
Vodafone must comply with a multitude of local and international
laws and applicable industry regulations. These include privacy,
anti-money laundering, competition, anti-bribery and economic
sanctions. Failure to comply with these laws and regulations could
lead to reputational damage, financial penalties and/or suspension
of our licence to operate.
How we manage it:
We have subject matter experts in legal teams and a robust
policy compliance framework. We train our employees in "Doing
what's right". These training and awareness programmes set out our
ethical culture across the organisation and assist employees to
understand their role in ensuring compliance.
Our target tolerance:
We seek to comply with all applicable laws and regulations in
all of our markets.
Scenario:
Breaches of legal compliance could lead to reputational damage,
investigation costs and fines.
Emerging threats:
Changing workplace dynamics, digital transformation, asset
integrations and a change in our employee demographics might
degrade our control environment so we are updating our Code of
Conduct and various policies to mitigate this.
Key changes to our principal risks
The global economic disruption risk increased as a result of the
COVID-19 outbreak.
We have renamed the successful integration of new assets and
management of joint ventures risk to strategic transformation,
which now addresses not only the integration of acquisitions but
also changes occurring from the separation of our tower portfolio
and other types of strategic transformation initiatives.
Market disruption risk has decreased when compared to our other
principal risks as some of our key markets have adapted and
responded positively to competitor activities.
The digital transformation risk has decreased as a result of the
progress we made on our digital journey and the IT transformation
programme.
Risk watchlist
We face a number of uncertainties where an emerging risk may
potentially impact us in the longer term. In some cases, there may
be insufficient information to understand the likely scale, impact
or velocity of the risk. We also might not be able to fully define
a mitigation plan until we have a better understanding of the
threat. We have created a watchlist of these emerging risks which
we review on a regular basis.
We regularly provide our Audit and Risk Committee with a list of
risks on our watchlist such that future strategies take into
account future technological, environmental, regulatory or
political changes.
Some examples of these risks are:
EMF
The risk can be broken down into three areas:
- failure to comply with national legislation or international
guidelines (set by the International Commission on Non-Ionizing
Radiation Protection ('ICNIRP')) as it applies to EMF, or failure
to meet policy requirements;
- the risk arising from concerted campaigns or negative
community sentiment towards location or installation of radio base
stations, resulting in planning delays; and
- changes in the radio technology we use or the body of credible
scientific evidence which may impact either of the two risks
above.
We have an established governance for EMF risk management (a
Group leadership team that reports to the Board, and a network of
EMF leaders across all markets), as well as an EMF taskgroup which
was set up in FY20, that focus on assessing and reporting on the
impact of 5G on EMF. The taskgroup scope included quantifying the
impact of EMF restrictions in those markets with limits that do not
align with international, science-based guidelines; coordinate
engagement with policy makers relating to 5G and EMF; and assess
the impact of social media campaigns on public concern.
Vodafone continues to advocate for national EMF regulations to
be harmonised with international guidelines. In March 2020, the
ICNIRP updated their guidelines (first published 1998) following a
review of published science. ICNIRP confirmed that there are no
adverse effects on human health from 5G frequencies if exposure is
within their guidelines. We have worked in partnership with the
GSMA and national trade associations to provide information on
these new guidelines to regulators, health agencies and Government
ministries. Additionally, we have updated national regulators about
how our advanced technologies for 5G services are compliant with
regulations. Vodafone always operates its mobile networks strictly
within national regulations, which are typically based on, or go
beyond, ICNIRP's guidelines, and we regularly monitor our
operations in each country to ensure we meet those regulations.
We have established a European tower company that is required to
comply with the Group's Radio Frequency Safety Policy (which meet
international standards) and local regulations.
Brexit
The Board continues to monitor the implications for Vodafone's
operations in light of the new trading relationship between the UK
and the EU, which has yet to be negotiated.
A cross-functional steering committee has identified the impact
of the UK and EU failing to reach a free trade agreement on the
Group's operations and has produced a comprehensive mitigation
plan.
Although our headquarters are in the UK, a large majority of our
customers are in other countries, accounting for most of our
revenue and cash flow. Each of our operating companies operates as
a standalone business, incorporated and licensed in the
jurisdiction in which it operates, and able to adapt to a wide
range of local developments. As such, our ability to provide
services to our customers in the countries in which we operate,
inside or outside the EU, is unlikely to be affected by the lack of
a free trade deal. We are not a major international trading
company, and do not use passporting for any of our major services
or processes.
The lack of an agreed free trade deal between the UK and EU
could lead to a fall in consumer and business confidence. Such a
fall in confidence could, in turn, reduce consumer and business
spend on our products and services.
Climate-related disclosures
We recognise that climate change poses a number of physical
risks (i.e. caused by the increased frequency and severity of
extreme weather events) and transition-related risks (i.e.
economic, technology or regulatory challenges related to moving to
a greener economy) for our business. We are currently aligning
internal processes with the recommendations of the Taskforce on
Climate-related Financial Disclosures ('TCFD') after the initial
independent gap analysis we reported in 2019. We have summarised
our progress to date in this section and aim to be fully aligned by
2022.
Managing climate risk
As a result of the growing understanding of the impacts of
climate change on our business, this was added as a risk to our
watchlist in 2019, recognising its evolving nature. The Group
External Affairs Director, a member of the Group Executive
Committee, heads the Planet agenda as part of our purpose-led
strategy (pages 16 to 19) and has overall accountability for
climate change, which includes providing updates to the Board on
our progress towards our climate-related goals. Furthermore, as
part of our sustainable business strategy (page 40), we monitor
climate-related metrics and develop plans to address specific risks
and opportunities. An example of this is our ambition to halve our
environmental impact by 2025 which includes a commitment to set
science-based carbon targets aligned to the most ambitious goal of
the Paris Agreement, to keep global temperature increase to 1.5
degrees (page 46).
Subject to shareholder approval of our Remuneration Policy at
the 2020 AGM, our ESG priorities will be embedded in our executive
remuneration arrangements via a specific measure under our
long-term incentive plan. For the 2021 financial year's award, this
measure will include a specific GHG reduction ambition - more
details of which can be found in our Directors' Remuneration Report
on pages 96 to 120.
Material risks and opportunities
The process to assess the materiality of climate-related risks
and opportunities follows industry and sectoral relevant benchmark
data and takes into consideration our principal risks (page 63).
Based on our initial assessment, the principal risks most
influenced by climate change are "adverse political and regulatory
measures" and "technology failures".
Key risk and opportunity areas arising from the assessment
are:
- Growing external pressures and demands for action negatively
impact revenues from those companies late to react and trigger an
increase in taxation and energy prices.
- Global focus on energy efficiency increases the likelihood of
new regulation impacting energy intensive assets, however it
carries an opportunity with the application of new
technologies.
- Increase in temperature and frequency of extreme weather
events (e.g. heat waves, storms) leads to higher energy consumption
for cooling and affects the quality of radio frequency and wireless
transmission, in addition to damaging equipment and harming
people's wellbeing.
At Vodafone, we believe our approach to business resilience will
mitigate the short to medium-term physical impacts of climate
change, and we will continue to monitor longer-term trends. Our
priority, however, is to prepare ourselves to face the challenges
and seize the opportunities posed by the move to a lower carbon
economy and the policy changes required to achieve it, for
instance, by growing our IoT connectivity platform and products to
enable our customers to reduce their carbon footprint.
Climate scenario analysis
We adopted three scenarios in line with the Bank of England's
reference climate scenarios - see figure below - as outlined in
their consultation document released in December 2019. We will
conduct the required assessments to quantify the business impacts
of all material climate related risks under each scenario and over
different time horizons to better understand the financial value at
risk.
The outputs of the scenario analysis will assist us in either
adjusting existing policies or developing new ones, especially
looking at opportunities to improve our business resilience and
continuity. It will also inform the assessment of our long-term
viability and allow us to validate the priority areas of focus set
in our Planet pillar. The overall aim is to provide the Board with
reasonable assurance of the sustainability of our business in
meeting the challenges of an ever-changing global economy.
Metrics and targets
We have been measuring and reporting on energy and carbon
emissions since 2001. Our latest emissions footprint can be found
on page 2. In addition, we have set a number of 2025 targets to
manage climate-related risks and reduce our impact on the
environment, such as to reduce our greenhouse gas emissions by 50%
and to purchase 100% renewable electricity. Related data can be
found in the sustainable business section pages 40 to 51.
COVID-19
Since January 2020, the COVID-19 pandemic has brought
significant disruption to our staff, suppliers and customers. It is
likely to change the global economic, social, political and
business landscape for the foreseeable future.
In order to adapt to a new external context, we undertook a
review of the impacts of the pandemic on our principal risks to
identify new opportunities that may arise or risks which may change
materially.
We are taking a three phase approach to help us to adapt to the
changing environment. We have a good foundation with our five-point
plan (see pages 54 and 55) and strong delivery against this across
our markets.
Phase 1: Immediate crisis management
We initiated our response to this crisis drawing on existing
pandemic response plans. The objective at this stage was to
prioritise the health, safety and wellbeing our workforce and the
immediate needs of our customers and governments.
During the early stages of the crisis we ensured our critical
infrastructure, resources and activities were organised so as to
provide continuity of our operations and to enable us to implement
our five-point plan.
Phase 2: Recovery
We expected to play an instrumental role in the speed of
recovery.
Our focus will be on the acceleration of digitisation that we
have already seen in the first phase, to help all businesses, but
especially SMEs, recover quickly and to enable government sectors
to become more resilient. Investment in 5G and continued
improvement of networks will create jobs and provide a launchpad
for other sectors to recover more quickly during the economic
crisis. We will also continue to protect the vulnerable through
measures to improve digital skills and drive digital inclusion.
Phase 3: The new normal
Our hope is that phase two supports a more positive trajectory
for the industry as a whole as we transition towards a "new
normal". In this phase, if the first two phases are successful and
subject to the unknown changes that COVID-19 may have brought to
societies more generally, we will aim to emerge as trusted partners
of our customers and governments. Strong and resilient
communications infrastructure is clearly essential for a resilient
society. This is dependent on a sustainable market structure and
fair regulatory framework.
Scenario analysis and impact assessment
We evaluated the impact of the COVID-19 pandemic across all our
principal risks to support sustainability of our operations.
Information was collected through interviews with risk owners and
champions and subject matter experts and input from our local
market colleagues.
We adopted two scenarios for our assessment: a short to
medium-term impact leading to an economic slowdown and, a
longer-term global recession with impacts likely beyond 2020. We
focused on the latter, more extreme case, as the basis for our
stress testing.
The review concluded that a significant number of our principal
risks would be adversely affected if this pandemic was reoccurring
and resulted in continued lockdown measures with a subsequent deep
global recession. For these affected risks we have developed
short-term responses and long-term strategic actions to minimise
the impact on our business.
We identified the following areas as the ones with the most
impact on our principal risks:
- The health, safety and wellbeing of our employees is vital for
us, therefore we reacted quickly to take relevant actions such as
implementing a global restriction for travel, restricting
attendance/organisation of large events, and increasing
smart-working at scale. To support our employees better in these
unprecedented times and to enable remote working, we also
introduced various digital content and online learning materials to
support our line managers and employees, initiated a pulse survey
to monitor closely employee wellbeing and engagement, and
virtualised most of our recruitment and onboarding processes (see
page 58).
- Delays across the supply chain are caused by the disruptions
in availability of people, goods, services and equipment. This is
expected to persist and be further compounded by the global
economic disruption which may negatively affect the financial
stability of critical suppliers. We reviewed the risks associated
with our critical suppliers and service providers and identified if
we have sufficient stock levels in our warehouses to address
scheduled replacement and maintenance of our equipment.
- We anticipate a continued increase in volume and scale of
financially motivated cyber attacks using phishing, malware and
denial of service. Criminals and other sophisticated threat actors
are using the crisis as cover to expand or continue their actions
against all sectors, include Vodafone and our customers. We have
heightened our security monitoring and response. We track external
threats working with governments, law enforcement and industry
specialists.
Finally, we have performed additional financial stress testing
and liquidity impact analysis in order to reflect the impacts from
the COVID-19 pandemic in the assessment of the Group's long-term
viability, as set out on page 71.
Next steps
With the COVID-19 crisis consistently evolving, we remain in
close contact with our local health authorities, governmental
agencies and other key stakeholders in all our geographies, so that
we can react and adapt to any changes in circumstances and minimise
the risk to Vodafone and our customers, employees and other
stakeholders.
There are a number of ongoing business reviews at both Group and
local market level to evaluate different courses of action in
response to the crisis.
Looking ahead, we will review the lessons learned during this
crisis as part of future updates to our risk management framework,
specifically when it comes to our approach to prepare for similar
type of events.
Long-Term Viability Statement ('LTVS')
The preparation of the LTVS includes an assessment of the
Group's long-term prospects in addition to an assessment of the
ability to meet future commitments and liabilities as they fall due
over the three year review period.
Assessment of viability
Vodafone continues to adopt a three year period to assess the
Group's viability, a period in which we believe our principal risks
tend to develop, in what is a dynamic industry sector. This time
horizon is also in line with the structure of long-term management
incentives and the outputs from the long range business planning
cycle.
For 2020, as a result of the increased pressures on the global
financial markets as a result of the COVID-19 pandemic, we
conducted additional financial stress testing and sensitivity
analysis, considering revenues at risk as well as the impact of our
response plan to the crisis.
The assessment of viability started with the available headroom
as of 31 March 2020 and considered the plans and projections
prepared as part of the forecasting cycle, which include the
Group's cash flows, planned commitments, required funding and other
key financial ratios. We also assumed that debt refinance will
remain available in all plausible market conditions.
Finally, we estimated the impact of severe but plausible
scenarios for all our principal risks on the three year plan and,
in addition, stress tested a combined scenario taking into account
the risk interdependencies as defined on the diagram on page 63,
where the following risks were modelled as materialising in
parallel over the three year period:
- Global economic disruption: Global events, such as the
COVID-19 pandemic, put pressure on our financial performance and
liquidity.
- Cyber threat and information security: An external
cyber-attack exploits vulnerabilities and leads to a GDPR fine.
- Geo-political risk in supply chain : Increase in trade wars
leads to decisions that may affect our supply chain and restricts
our ability to use critical suppliers.
- Adverse political and regulatory measures : Governments in
financial struggle look to other sources to raise revenues, such as
spectrum auctions.
Assessment of long-term prospects
Each year the Board conducts a strategy session, reviewing the
internal and external environment as well as significant threats
and opportunities to the sustainable creation of long-term
shareholder value (note that known emerging threats related to each
principal risk are described in pages 8 and 9).
As an input to the strategy discussion, the Board considers the
principal risks that are longer term in nature (including adverse
political and regulatory measures, market disruption and
disintermediation), with the focus on identifying underlying
opportunities and setting the Group's future strategy. The output
from this session is reflected in the strategic section of the
Annual Report (pages 20 to 25), which provides a view of the
Group's long-term prospects.
Conclusions
The Board assessed the prospects and viability of the Group in
accordance with provision 31 of the UK Corporate Governance Code,
considering the Group's strategy and business model, and the
principal risks to the Group's future performance, solvency,
liquidity and reputation. The assessment takes into account
possible mitigating actions available to management where any risk
or combination of risks materialise.
Total cash and cash equivalents available of EUR13.3 billion
(page 188) as of 31 March 2020, along with options available to
reduce cash outgoings over the period considered, provide the Group
with sufficient positive headroom in all scenarios tested. Reverse
stress testing on revenue and EBITDA over the review period
confirmed that the Group has sufficient headroom available to face
uncertainty. The Board deemed the stress test conducted to be
adequate and therefore confirm that they have a reasonable
expectation that the Group will remain in operation and be able to
meet its liabilities as they fall due up to 31 March 2023.
RELATED PARTY TRANSACTIONS
The Group has a number of related parties including joint
arrangements and associates, pension schemes and Directors and
Executive Committee members (see note 12 "Investments in associates
and joint arrangements", note 25 "Post employment benefits" and
note 23 "Directors and key management compensation").
Transactions with joint arrangements and associates
Related party transactions with the Group's joint arrangements
and associates primarily comprise fees for the use of products and
services including network airtime and access charges, fees for the
provision of network infrastructure and cash pooling arrangements.
No related party transactions have been entered into during the
year which might reasonably affect any decisions made by the users
of these consolidated financial statements except as disclosed
below.
2020 2019 2018
EURm EURm EURm
----------------------------------------------------- -------- ------ --------
Sales of goods and services to associates 32 27 19
Purchase of goods and services from associates 4 3 1
Sales of goods and services to joint arrangements 305 242 194
Purchase of goods and services from joint
arrangements 97 192 199
Net interest income receivable from joint
arrangements (1) 71 196 120
----------------------------------------------------- -------- ------ --------
Trade balances owed:
by associates 4 1 4
to associates 4 3 2
by joint arrangements 157 193 107
to joint arrangements 37 25 28
Other balances owed by joint arrangements(1) 1,083 997 1,328
Other balances owed to joint arrangements
(2) 2,017 169 150
----------------------------------------------------- -------- ------ --------
Notes:
1 Amounts arise primarily through VodafoneZiggo, Vodafone
Hutchison Australia and Inwit S.p.A.. Interest is paid in line with
market rates.
2 Amounts for the year ended 31 March 2020 are primarily in
relation to leases of tower space from INWIT S.p.A (see note
20).
Dividends received from associates and joint ventures are
disclosed in the consolidated statement of cash flows.
Transactions with Directors other than compensation
During the three years ended 31 March 2020, and as of 28 May
2020, no Director nor any other executive officer, nor any
associate of any Director or any other executive officer, was
indebted to the Company. During the three years ended 31 March 2020
and as of 28 May 2020, the Company has not been a party to any
other material transaction, or proposed transactions, in which any
member of the key management personnel (including Directors, any
other executive officer, senior manager, any spouse or relative of
any of the foregoing or any relative of such spouse) had or was to
have a direct or indirect material interest.
DIRECTORS' RESPONSIBILITY STATEMENT
As set out above, this statement is repeated here solely for the
purposes of complying with Disclosure Guidance and Transparency
Rule 6.3.5. This statement relates to and is extracted from the
2020 Annual Report.
Responsibility is for the full 2020 Annual Report not the
extracted information presented in this announcement and the final
results announcement.
Each of the Directors, whose names and functions are listed on
pages 76 and 77 confirms that, to the best of his or her
knowledge:
- the consolidated financial statements, prepared in accordance
with IFRS as issued by the IASB and IFRS as adopted by the EU, give
a true and fair view of the assets, liabilities, financial position
and profit of the Group;
- the parent company financial statements, prepared in
accordance with United Kingdom generally accepted accounting
practice, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
- the Strategic Report includes a fair review of the development
and performance of the business and the position of the Group,
together with a description and robust assessment of the principal
risks and uncertainties that it faces.
The Directors are also responsible under section 172 of the
Companies Act 2006 to promote the success of the Company for the
benefit of its members as a whole and in doing so have regard for
the needs of wider society and stakeholders, including customers,
consistent with the Group's core and sustainable business
objectives.
Having taken advice from the Audit and Risk Committee, the Board
considers the report and accounts, taken as a whole, is fair,
balanced and understandable and that it provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
Neither the Company nor the Directors accept any liability to
any person in relation to the Annual Report except to the extent
that such liability could arise under English law. Accordingly, any
liability to a person who has demonstrated reliance on any untrue
or misleading statement or omission shall be determined in
accordance with section 90A and schedule 10A of the Financial
Services and Markets Act 2000.
By Order of the Board
Rosemary Martin
Group General Counsel and Company Secretary
28 May 2020
This document contains "forward-looking statements" within the
meaning of the US Private Securities Litigation Reform Act of 1995
with respect to the Group's financial condition, results of
operations and businesses and certain of the Group's plans and
objectives. Forward-looking statements are sometimes, but not
always, identified by their use of a date in the future or such
words as "will", "anticipates", "aims", "could", "may", "should",
"expects", "believes", "intends", "plans", "prepares" or "targets"
(including in their negative form or other variations). By their
nature, forward-looking statements are inherently predictive,
speculative and involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future.
There are a number of factors that could cause actual results and
developments to differ materially from those expressed or implied
by these forward-looking statements. A review of the reasons why
actual results and developments may differ materially from the
expectations disclosed or implied within forward-looking statements
can be found under "Forward-looking statements" and "Risk
management" in the Group's annual report for the financial year
ended 31 March 2020. The annual report can be found on the Group's
website (vodafone.com/investor). All subsequent written or oral
forward-looking statements attributable to the Company or any
member of the Group or any persons acting on their behalf are
expressly qualified in their entirety by the factors referred to
above. No assurances can be given that the forward-looking
statements in this document will be realised. Any forward-looking
statements are made of the date of this presentation. Subject to
compliance with applicable law and regulations, Vodafone does not
intend to update these forward-looking statements and does not
undertake any obligation to do so.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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