TIDMVOD
RNS Number : 7158C
Vodafone Group Plc
14 June 2023
MERGER OF VODAFONE UK & THREE UK
TO CREATE ONE OF EUROPE'S LEADING 5G NETWORKS
(London and Hong Kong, 14 June 2023) Vodafone Group Plc ("
Vodafone ") and CK Hutchison Group Telecom Holdings Limited ("
CKHGT "), a wholly owned subsidiary of CK Hutchison Holdings
Limited ("CK Hutchison"), have entered into binding agreements in
relation to a combination of their UK telecommunication businesses,
respectively Vodafone UK (" Vodafone UK ") and Three UK (" Three UK
") (the " Transaction "). Vodafone will own 51% of the combined
business ("MergeCo") and CKHGT 49%.
Margherita Della Valle, Vodafone Group Chief Executive,
described the merger of Vodafone UK and Three UK as being "great
for customers, great for the country and great for
competition."
Great for Customers
-- From day one(1) , millions of customers of Vodafone UK and
Three UK will enjoy a better network experience with greater
coverage and reliability at no extra cost, including through
certain flexible, contract-free offers with no annual price
increases, and social tariffs.
-- MergeCo will reach more than 99% of the UK population with
our 5G standalone network, delivering to customers up to a six-fold
increase in average data speeds by 2034(2) .
Great for Country
-- The combined business will invest GBP11 billion in the UK(3)
over ten years to create one of Europe's most advanced standalone
5G networks, in full support of UK Government targets.
-- By having a best-in-class 5G network in place sooner, the
merger will deliver up to GBP5 billion per year in economic benefit
by 2030(4) , create jobs and support digital transformation of the
UK's businesses. Every school and hospital in the UK will have
access to standalone 5G by 2030.
Great for Competition
-- The merger will create a third operator with scale, levelling
the competitive playing field, increasing competition to the UK's
two leading converged operators and will also provide more choice
in wholesale partners for the UK's already competitive MVNOs.
-- The combined business will offer fixed wireless access
(mobile home broadband) to 82% of households by 2030, complementing
MergeCo's access to the UK's biggest full fibre footprint.
Value-creating Transaction
-- No cash consideration to be paid, with the Vodafone UK and
Three UK businesses contributed with differential debt amounts at
completion to achieve MergeCo ownership of 51:49 between Vodafone
and CKHGT.
-- Comprehensive joint governance framework in place between
Vodafone and CKHGT, with Vodafone fully consolidating MergeCo.
Vodafone and CKHGT having call and put options, respectively, which
if exercised, would result in Vodafone acquiring CKHGT's 49%
shareholding.
-- The Transaction is expected to result in substantial
efficiencies. These are expected to amount to more than GBP700
million of annual cost and capex synergies by the fifth full year
post-completion, with an implied NPV of over GBP7 billion.
-- Current Vodafone UK CEO Ahmed Essam will become MergeCo CEO,
and current Three UK CFO Darren Purkis will take the role of
MergeCo CFO.
-- The Transaction is expected to close before the end of 2024,
subject to regulatory and shareholder approvals.
Margherita Della Valle, Vodafone Group Chief Executive,
said:
"The merger is great for customers, great for the country and
great for competition. It's transformative as it will create a
best-in-class - indeed best in Europe - 5G network, offering
customers a superior experience. As a country, the UK will benefit
from the creation of a sustainable, strongly competitive third
scaled operator - with a clear GBP11 billion network investment
plan - driving growth, employment and innovation. For Vodafone,
this transaction is a game changer in our home market. This is a
vote of confidence in the UK and its ambitions to be a centre for
future technology."
Canning Fok, Group Co-Managing Director of CK Hutchison
said:
"Today's announcement is a major milestone for CK Hutchison and
for the UK. Three UK and Vodafone UK currently lack the necessary
scale on their own to earn their cost of capital. This has long
been a challenge for Three UK's ability to invest and compete.
Together, we will have the scale needed to deliver a best-in-class
5G network for the UK, transforming mobile services for our
customers and opening up new opportunities for businesses across
the length and breadth of the UK. This will unlock significant
value for CK Hutchison and its shareholders, realise material
synergies, reduce net financial indebtedness and further strengthen
its financial profile ."
Ahmed Essam, Vodafone UK Chief Executive, said:
"The combination of Vodafone UK and Three UK will bring more
choice and better value to customers nationwide. With scale to
invest, we will create a best-in-class 5G network, supporting the
Government's 5G ambitions, drive digital transformation and create
jobs. Through converged offers we will really challenge the two
largest operators and, of course, we will continue to support the
most vulnerable in society with our social tariffs and our
commitment to help 6 million people cross the digital divide by
2025."
Robert Finnegan, CEO of Three UK, said:
"Today's news marks a significant step in our efforts to create
a business that will build the biggest and fastest 5G mobile
network in the country. The combination of Three UK and Vodafone UK
will bring the advantages of 5G to every business and household in
the UK, enabling the UK to deliver its ambitions for digital and
economic growth and fully supporting the UK Government's objectives
for a world-leading digital economy."
This preceding summary should be read in conjunction with the
full text of this announcement, together with the Circular (as
defined below) which will be published to the extent required at
the time.
Investor & analyst presentation
Vodafone is hosting a presentation and Q&A that will start
promptly at 13:30 (BST) on 14 June 2023 for analysts and investors,
which will be webcasted live via investors.vodafone.com/results
.
Vodafone UK and Three UK have launched a microsite
vodafoneandthree.uk with more information about MergeCo that will
be updated on a regular basis.
For more information, please contact:
Vodafone Investor Relations Vodafone Media Relations
investors.vodafone.com Vodafone.com/media/contact
ir@vodafone.co.uk GroupMedia@vodafone.com
Registered Office: Vodafone House, The Connection, Newbury,
Berkshire RG14 2FN, England. Registered in England No. 1833679
CK Hutchison Investor Relations CK Hutchison Media Relations
ckh.com.hk/en/ir ckh.com.hk/en/media/contact
ir@ckh.com.hk vodafoneandthree@teneo.com
Strategic rationale for the Transaction
The Transaction will create a best-in-class network for coverage
and reliability for the UK, benefiting customers, the country and
competition.
Great for Customers
From day one Transform customer experience
-- Better network: An improved network performance is expected
from day one(1) . Customers will benefit from improved network
speeds and reduction in network congestion. Customers of Vodafone
UK and Three UK will also benefit from an increase in coverage,
exceeding the Government's 2027 targets(5) .
-- Better value: There will be no change to each operator's
pricing strategy as a result of the Transaction. Customers will pay
the same for more, driven by the significantly improved network.
MergeCo will remain fully committed to supporting vulnerable
customers by continuing to offer social tariffs for mobile and
broadband, protected from inflation, as well as flexible,
contract-free offers with no annual price increases. Both companies
will continue to support vulnerable customers and programmes that
focus on skills and digital inclusion to help almost 6 million
people.
-- More choice in home broadband : MergeCo will have the UK's
widest availability of connections with over 100Mbps speeds through
full fibre broadband combined with fixed wireless access
("FWA").
In the future Best-in-class network - increased capacity,
coverage and speed, with greater reliability
-- Capacity: By combining our networks, network capacity in the
future will almost double compared to the two companies on a
standalone basis(6) .
-- Coverage : MergeCo expects to reach over 99% UK population
coverage with a 5G standalone network by 2034(7) . This is wholly
aligned with the UK government ' s Wireless Infrastructure
Strategy, which sets ambitions for 5G in all populated areas (8) by
2030(9) . This will ensure rural communities across all four
nations are not left behind.
-- Speed : An up-to six-fold increase in average data speeds for
customers by 2034 (compared to each standalone company today)(2) is
expected to be achieved enabling customers to reach multi-gigabit
speeds.
-- Reliability : Due to the improved coverage, speed and
capacity of the network, the combined business will be able to
provide customers with a better quality, more reliable
experience.
Great for Country
-- Turbocharge growth, employment and digital innovation :
Through the new combined business, MergeCo will deploy one of
Europe's most comprehensive and advanced standalone 5G networks,
powering the UK's digital economy and underpinning the UK's role as
a digital tech leader in Europe. By having a better 5G network in
place sooner, MergeCo is expected to deliver up to GBP5 billion per
year in UK economic benefit by 2030(4) , supporting the digital
transformation for schools, hospitals and businesses. MergeCo's
standalone 5G network will cover every school and hospital in the
UK by 2030(10) , helping deliver the Government's stretch ambition
as set out in the Wireless Infrastructure Strategy(9) .
-- Investment: MergeCo intends to invest over GBP6 billion in
the first five years, and GBP11 billion over a ten-year plan(3) ,
to create a best-in-class 5G network. This level of infrastructure
investment would be expected to support between 8,000 and 12,000
new jobs in the wider economy(11) .
-- Accelerating the transition to net zero(12) : MergeCo will
achieve this whilst also reducing energy consumption by
accelerating the installation of energy efficient 5G equipment and
replacing less power-efficient 2G and 3G systems.
Great for Competition
-- More competition and greater network investment: The merger
will level the competitive playing field, increasing competition to
the two largest converged operators. The merger will create a third
mobile operator with scale, competing across all technologies and
driving network investment by all players.
Vodafone UK and Three UK are currently sub-scale, with only
c.20% and c.10%(13) share of the mobile market by subscriber,
respectively. This makes both companies unable to recover their
cost of capital (as Ofcom found in its future approach to mobile
markets and spectrum review - both companies have Return on Capital
Employed of 1-2%) and limits their ability to continue to
invest(14) . After completion, MergeCo will have the necessary
scale and a great platform to invest, grow and compete.
-- More retail competition : We will be better able to compete
for all customers driving further network, retail mobile and fixed
broadband competition in the UK, including the ability to make
converged offers in competition with the two largest operators BT
EE and Virgin Media O2. The continuing network sharing agreement
with Virgin Media O2 means that its customers will also enjoy
network improvements from this transaction, providing an additional
boost to competition in relation to market leader BT EE.
-- More wholesale competition: With the scale and better quality
provided by MergeCo's combined network, the UK's MVNOs will gain
better choice for wholesale partnerships, keeping fierce price
competition at the retail level. MVNOs are the fastest growing part
and a major competitive force in the retail market representing
around 16.5%(13) of mobile subscribers . Approximately 90% of MVNO
customers are currently on BT EE or Virgin Media-O2 networks(15)
.
Value-creating Transaction
The Transaction is expected to result in substantial
efficiencies totalling to more than GBP700 million of annual cost
and capex synergies by the fifth full year post-completion, with an
implied NPV of over GBP7 billion.
Sources of synergies include:
-- bringing together our network infrastructure, which allows us
to run and scale the network at lower unit costs compared to
standalone capabilities;
-- consolidation of IT systems;
-- rationalisation of the combined marketing, sales,
distribution and logistics activities; and
-- efficiencies in general and administration costs .
In addition to cost and capex efficiencies, there is also an
opportunity to realise material revenue synergies underscored by
greater access to the consumer market, cross-selling opportunities
from the Vodafone UK and Three UK mobile bases, and incremental
opportunities from accelerated Enterprise 5G use-cases.
To achieve these, MergeCo expects to incur approximately GBP500
million of integration costs, most of which will be incurred in the
first five years post-completion.
Transaction summary
Transaction terms
Vodafone and CKHGT will combine their respective UK businesses,
Vodafone UK and Three UK. Vodafone will have a 51.0% interest in
MergeCo, with CKHGT holding the remaining 49.0%.
No cash consideration to be paid, with Vodafone UK and Three UK
contributed with differential debt amounts at completion of the
Transaction to achieve MergeCo ownership of 51:49. Vodafone UK will
be contributed with GBP4.3 billion and Three UK with GBP1.7
billion, subject to customary completion adjustments. The initial
total debt in MergeCo is expected to be approximately GBP6.0
billion, of which the GBP1.7 billion amount owing to CKHGT will be
refinanced.
MergeCo's aggregate consolidated free cash flow will be
distributed to the shareholders at least on an annual basis,
subject to a target aggregate consolidated net financial debt of
2.5x MergeCo's 12 month rolling Adjusted EBITDAaL.
Governance
Vodafone and CK Hutchison have agreed a comprehensive joint
governance framework for MergeCo. Vodafone has the right to appoint
the CEO and CK Hutchison the CFO. Current Vodafone UK CEO Ahmed
Essam will assume the role of MergeCo CEO, with the current Three
UK CFO Darren Purkis taking the role of MergeCo CFO. MergeCo will
have a six-person board, comprising three directors appointed by
Vodafone and three directors appointed by CK Hutchison. Employees
of both businesses will be afforded equal opportunities for
relevant positions in the combined business. Vodafone and CK
Hutchison will each have customary reserved matters, with Vodafone
having a casting vote in relation to MergeCo's business plan and
budget.
Exit mechanisms
The parties have agreed a put/call framework in order to enable
Vodafone to acquire 100% of MergeCo. After three full years
following completion of the Transaction (the "Lock-up Period"),
Vodafone may acquire CKHGT's 49.0% stake in MergeCo (the "Call
Option"), and CKHGT may sell its 49.0% stake in MergeCo to Vodafone
(the "Put Option") (together the "Put/Call Framework").
The consideration for CKHGT's 49.0% stake in MergeCo under the
Put/Call Framework will be based on fair market value, determined
through an independent third-party valuation process ("Fair Market
Value"). Exercise of the Call Option and Put Option will be subject
to Fair Market Value reaching a minimum enterprise value of GBP16.5
billion for MergeCo (the "Exercise Threshold"). After the seventh
financial year following completion of the Transaction, the
Exercise Threshold shall not apply to the exercise of the Put
Option. Completion under the Call Option and the Put Option will be
subject to customary regulatory and shareholder approvals and
consents.
In respect of both the Call Option and the Put Option, Vodafone
can elect to pay CKHGT in cash and/or non-cash consideration (being
new shares and loan notes issued by Vodafone), subject to certain
conditions and protections for CKHGT as a result of holding such
non-cash consideration. For any non-cash consideration, one third
shall be settled by the issuance of new Vodafone shares subject to
a cap of 5% (in the case of the Call Option only) of the enlarged
issued share capital. The remainder of the non-cash Consideration
shall be settled by loan notes. 50% will mature on the second
anniversary of completion of the Call Option or the Put Option and
the residual 50% of which will mature on the fourth anniversary of
the completion of the Call Option or the Put Option. On the
maturity dates, Vodafone shall redeem the loan notes, based on a
mix of cash and/or new Vodafone shares at its election. Further
details on these additional provisions will be provided in any
Circular (to the extent one is required).
Effect of the Transaction on Vodafone
MergeCo will be consolidated in Vodafone's financial statements
and Vodafone has agreed to provide the initial debt financing to
the joint venture.
The Transaction is expected to have a broadly neutral impact on
Vodafone's Net debt to Adjusted EBITDAaL and is expected to be
accretive to Adjusted free cash flow from the fourth full year
onwards.
Further information regarding the indicative financial profile
is included as an Appendix.
Conditions to completion and indicative timetable
The Put Option and the arrangements described above constitute
Class I transactions for Vodafone under the UK Listing Rules and
will, as at the date of this announcement, require the approval of
Vodafone's shareholders. Vodafone will, to the extent required at
the relevant time, publish a circular to shareholders (the "
Circular ") convening a meeting to approve the Put Option and the
arrangements described as part of the Transaction terms.
The Transaction constitutes a " major transaction " for CK
Hutchison under the Listing Rules of the Hong Kong Stock Exchange
and will be subject to approval by shareholders of CK Hutchison.
Shareholders of CK Hutchison having an aggregate holding of
approximately 30% of the existing issued share capital of CK
Hutchison, as at the date of this announcement, have provided an
irrevocable commitment to vote in favour of the Transaction.
The Transaction is also subject to certain regulatory
conditions, including clearance from the UK's Competition and
Markets Authority (" CMA ") and approval under the UK National
Security and Investment Act.
Completion of the Transaction is expected to occur before the
end of 2024, subject to regulatory and shareholder approvals.
Transaction advisers
In connection with the Transaction, Morgan Stanley is acting as
lead financial adviser to Vodafone, and Slaughter and May is acting
as legal adviser to Vodafone. Robey Warshaw has also provided
advice to Vodafone in connection with the Transaction.
About Vodafone
Vodafone is the largest pan-European and African telecoms
company. Our purpose is to connect for a better future by using
technology to improve lives, digitalise critical sectors and enable
inclusive and sustainable digital societies.
We provide mobile and fixed services to over 300 million
customers in 17 countries, partner with mobile networks in 46 more
and are also a world leader in the Internet of Things (IoT),
connecting over 160 million devices and platforms. With Vodacom
Financial Services and M-Pesa, we have the largest financial
technology platform in Africa, serving more than 56 million people
across six countries.
We are committed to reducing our environmental impact to reach
net zero emissions by 2040, while helping our customers reduce
their own carbon emissions by 350 million tonnes by 2030. We are
driving action to reduce device waste and achieve our target to
reuse, resell or recycle 100% of our network waste.
For more information, please visit www.vodafone.com , follow us
on Twitter at @VodafoneGroup or connect with us on LinkedIn at
www.linkedin.com/company/vodafone .
About CK Hutchison Holdings Limited
Listed on The Stock Exchange of Hong Kong Limited, CK Hutchison
Holdings Limited (CK Hutchison) is a renowned multinational
conglomerate committed to innovation and technology with businesses
spanning the globe. With operations in about 50 countries/markets
and 300,000 employees worldwide, CK Hutchison has four core
businesses - ports and related services, retail, infrastructure and
telecommunications. The Group is fully committed to its
environmental and social sustainability responsibilities with
policies, programmes and innovations across its businesses to
address sustainability challenges such as the net-zero
transition.
CK Hutchison reported turnover of approximately HKD457 billion
for the year ended 31 December 2022.
For more information, please visit www.ckh.com.hk .
Appendix
Indicative financial profile of MergeCo
MergeCo is expected to benefit from the scale and complementary
nature of each partner. Vodafone has agreed to provide a suite of
services to MergeCo post completion ensuring MergeCo will benefit
from the scale and efficiencies of the wider Vodafone group.
Key indicative information on Three UK(16)
Year ended 31 December
--------------------------------------------
(GBP million) 2022 2021
--------------------- ---------------------
Total revenue (note 16a) 2,520 2,444
EBITDA pre-IFRS 16 (note 16b) 612 609
Capex (cash basis note 16c) (743) (784)
Illustrative Operating free cash flow (defined
as EBITDA pre-IFRS 16 less Capex) (note
16d) (131) (175)
The financial information on Three UK set out above has been
extracted from information previously published by CK Hutchison and
was prepared in accordance with CK Hutchison's accounting policies
and definitions. No adjustments have been made to align the
financial information presented to Vodafone's definitions (see note
16) or accounting policies (see note 17). Additionally,
consolidated financial statements have not historically been
prepared for the Three UK perimeter, which may require further
adjustments to be recognised. The financial information on Three UK
contained in the Circular may therefore differ materially from the
financial information set out above.
Key indicative information on Vodafone UK(18)
Year ended 31 March
--------------------------------------------
(GBP million) 2023 2022
--------------------- ---------------------
Total revenue 5,899 5,602
Adjusted EBITDAaL (note 18a) 1,160 1,176
Estimated charges from Vodafone Group (note
18b) (253) (253)
Capex (accrual basis) (766) (690)
Illustrative Operating free cash flow (defined
as Adjusted EBITDAaL less estimated charges
from Vodafone Group less Capex) (note 18c) 141 233
The financial information on Vodafone UK set out above has been
extracted from the underlying consolidation schedules used in
preparing the Vodafone consolidated financial statements for the
years ended 31 March 2023 and 31 March 2022. See note 18 for
further information.
Footnotes
1. Defined as achieved within the first 12-months from closing.
2. Network speed here means network-wide average throughput
(weighted across configurations and averaged over time). The
modelling is based on average radio conditions and network
load.
3. Represents the total combined capex spend over the 10-year
period of the MergeCo business plan.
4. The joint network of the MergeCo could generate economic
benefits to the UK in 2030 of up to GBP5 billion depending on 5G
adoption rate.
5. Government's Shared Rural Network programme announced in March 2020.
6. Based on aggregation of capacity capabilities from both networks.
7. MergeCo will reach over 99% population coverage with a 5G
standalone network by 2034, and over 95% population coverage by
2030, in full support of the Government's April 2023 Wireless
Infrastructure Strategy report which sets ambitions for nationwide
coverage of 5G standalone in all populated areas by 2030.
8. Government defines this as 'villages and rural communities
well beyond cities and towns' which equates to c.2/3 geographic
coverage to achieve all populated areas (per Government
comments).
9. The Wireless Infrastructure Strategy, published in April
2023, contains an ambition for the UK to have nationwide coverage
of standalone 5G to all populated areas by 2030.
10. Based on outdoor levels for low-band spectrum, data for
schools and hospitals as per Ordnance Survey; Points of Interest
Classification Scheme - Version 3.1.
11. Internal Vodafone analysis using government data based on
the relationship between investment, GDP and jobs.
12. Existing, standalone Net Zero targets will continue to be
met. Will need in due course to confirm combined entity's
targets.
13. Shares from GSMA Intelligence.
14. Ofcom's future approach to mobile markets and spectrum:
conclusions paper (December 2022); figure 4.2.
15. Assumes there are approximately 150 MVNOs in the UK (CMA
Final Report dated 20 May 2021, Anticipated Joint Venture between
Liberty Global Plc and Telefonica S.A., para 2.29), of which 90%
are on BT/EE and VMO2 network.
16. The financial information on Three UK has been extracted
from information previously published by CK Hutchison. No
adjustments have been made to align the financial information
presented to Vodafone's definitions (as detailed below) or
accounting policies (see note 17).
a) CK Hutchison reported revenue from its UK telecommunications
operations of GBP2,520 million for the year ended 31 December 2022
and GBP2,444 million for the year ended 31 December 2021 on page 42
of its 2022 Annual Report.
b) CK Hutchison reported EBITDA pre-IFRS 16 for its UK
telecommunications operations of GBP612 million for the year ended
31 December 2022 and GBP609 million for the year ended 31 December
2021. There are a number of differences between CK Hutchison's
definition of EBITDA pre-IFRS 16 (as defined in note 1 on page 6 of
CK Hutchison's 2022 Annual Report) and Vodafone's definition of
Adjusted EBITDAaL (as defined in Non-GAAP measures on page 220 of
the Vodafone Annual Report 2023). These are set out below.
i. CK Hutchison recognises indirect channel revenue share
customer acquisition costs within amortisation (outside EBITDA
pre-IFRS 16) whereas this is expensed within Adjusted EBITDAaL by
Vodafone.
ii. CK Hutchison's definition of EBITDA pre-IFRS 16 includes all
'operating lease' charges (as defined in IAS 17) on a pre-IFRS 16
basis, whereas Vodafone's definition of Adjusted EBITDAaL includes
all lease charges on a post-IFRS 16 basis.
c) CK Hutchison reported Capex (excluding licence) for its UK
telecommunications operations of GBP743 million for the year ended
31 December 2022 and GBP784 million for the year ended 31 December
2021. CK Hutchison reports Capex (excluding licence) on a cash
basis, whereas Vodafone reports capital additions on an accruals
basis.
d) 'Illustrative Operating free cash flow' has been calculated
as EBITDA pre-IFRS 16 less capital expenditure for illustrative
purposes only and does not include all the adjustments that may be
required to arrive at an actual estimate of operating free cash
flow. The actual Operating free cash flow for Three UK contained in
the Circular may therefore differ materially from the Illustrative
Operating Free Cash Flow set out above.
e) As at 31 December 2022, Three UK's net assets were GBP6,217 million.
f) Note: In November 2022, Three UK completed the disposal of
its interests in telecommunications tower assets in the United
Kingdom. The financial information for the year ended 31 December
2022 therefore includes approximately one month of results
reflecting the impact of this disposal.
17. The financial information was prepared in accordance with
Three UK's accounting policies and no adjustments have been made to
align the accounting policies of Three UK to those of Vodafone. In
accordance with the Listing Rules, the Circular will contain
historical financial information on Three UK covering the latest
three financial years (expected to be the years ended 31 December
2022, 2021 and 2020) prepared in accordance with IFRS and
consistent with Vodafone's accounting policies, whether set out in
Vodafone's Annual Report 2023 or, where it does not currently have
a relevant accounting policy, those Vodafone proposes to adopt in
the future. Such financial information on Three UK contained in the
Circular may therefore differ from the financial information set
out above. Vodafone has undertaken an initial review to compare
Three UK's accounting policies to those of Vodafone. The following
areas are expected to require alignment in the Circular but have
not been adjusted in the above summary financial information:
a) On initial adoption of IFRS 16 Leases, both Vodafone and
Three UK applied the 'modified retrospective approach' to leases.
Vodafone applied the option under this approach to recognise Right
of Use assets at an amount equal to the lease liability, adjusted
by the amount of any prepaid or accrued lease payments relating to
that lease recognised in the statement of financial position
immediately before the date of initial application. However, Three
UK measured its Right of Use assets as if the standard had been
applied since the commencement of the lease, using the incremental
borrowing rate at the date of initial application, with the
cumulative effect (being the accumulated depreciation up to the
initial adoption date) recognised as an adjustment to the opening
retained earnings.
b) Vodafone charges amortisation for spectrum licences to the
income statement (within amortisation, outside of Adjusted
EBITDAaL) on a straight-line basis over the estimated useful lives
from the commencement of related networks services. Three UK
considers its spectrum licence to have an indefinite useful life
and therefore no amortisation is charged.
Based on this in itial review, the differences noted above may
have a material impact on Three UK's previously reported financial
information. In addition, further potential differences which could
materially impact the reported financial information may arise once
a comprehensive accounting policy difference exercise has been
completed. This process will be completed prior to publication of
the Circular. Three UK's historical financial information will be
adjusted to reflect the results of this review and may therefore
differ from the financial information set out above. Following the
completion of the Transaction, within the Vodafone Group, certain
consolidation adjustments will be required in relation to trading
between Vodafone and Three UK.
18. The financial information on Vodafone UK has been extracted
from the underlying consolidation schedules used in preparing the
Vodafone consolidated financial statements for the years ended 31
March 2023 and 31 March 2022. There are certain differences between
the information previously published by Vodafone for its UK segment
and the Transaction perimeter, which are set out below:
a) Adjusted EBITDAaL is presented above as defined in Non-GAAP
measures on page 220 of the Vodafone Annual Report 2023. Adjusted
EBITDAaL for the UK segment of GBP1,167 million for the year ended
31 March 2023 and GBP1,185 million for the year ended 31 March 2022
has been adjusted to exclude the share of profits of Vodafone
Properties Investment Limited (GBP7 million for the year ended 31
March 2023 and GBP9 million for the year ended 31 December 2022),
which is outside the transaction perimeter.
b) Following closing of the Transaction, new agreements will be
entered into whereby Vodafone Group will provide services to
MergeCo. Under the new agreements certain charges from Vodafone
Group will cease and others will reflect amended commercial terms.
Had the new agreements been in place throughout FY23 and FY22, it
is estimated that the total charges from Vodafone Group would be
GBP253 million higher than those reflected in the segmental
reporting for Vodafone UK's Adjusted EBITDAaL and capex. For the
avoidance of doubt, this information is not intended to represent
pro forma financial information as defined in the Listing Rules and
represents an illustrative estimate only.
c) 'Illustrative Operating free cash flow' has been calculated
as Adjusted EBITDAaL less estimated charges from Vodafone Group
under new agreements less capital expenditure. Illustrative
Operating free cash flow has been calculated for illustrative
purposes only and does not include all the adjustments that may be
required to arrive at an actual estimate of operating free cash
flow. The actual operating free cash flow for Vodafone UK contained
in the Circular may therefore differ materially from the
Illustrative Operating free cash flow set out above.
d) As at 31 March 2023, Vodafone UK's gross assets were GBP9,708
million. This amount has been extracted from Vodafone management
information.
Important notice
This announcement has been issued by and is the sole
responsibility of Vodafone . The information contained in this
announcement is for background purposes only and does not purport
to be full or complete. The information in this announcement is
subject to change. This announcement is for information purposes
only and is not intended to and does not constitute or form part of
any offer or invitation to purchase or subscribe for, or any
solicitation to purchase or subscribe for, shares in any
jurisdiction.
The distribution of this announcement into jurisdictions other
than the United Kingdom may be restricted by law, and, therefore,
persons into whose possession this announcement comes should inform
themselves about and observe any such restrictions. Any failure to
comply with any such restrictions may constitute a violation of the
securities laws of such jurisdiction.
Forward-looking statements
The information in this announcement (the "Information") may
constitute or include forward-looking statements. Forward-looking
statements include, without limitation, statements that typically
contain words such as "anticipate", "target", "expect", "estimate",
"intend", "plan", "believe", "hope", "aims", "continue", "will",
"may", "should", "would", "could", or other words of similar
meaning. By their nature, forward-looking statements involve risks
and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. Vodafone
cautions you that forward-looking statements are not guarantees of
the occurrence of such future events or of future performance and
that in particular the actual results of operations, financial
condition and liquidity, the development of the industry in which
Vodafone, the Vodafone group, MergeCo and other persons involved in
the Transaction operate and the outcome or impact of the
transaction and related matters on Vodafone, the Vodafone Group
and/or MergeCo or other persons may differ materially from those
made in or suggested by the forward-looking statements contained in
the Information. These expectations or any forward-looking
statements could prove to be incorrect, and outcomes usually cannot
be influenced by Vodafone, the Vodafone G+/-+/-roup and/or MergeCo.
It should be kept in mind that actual events or consequences may
differ materially from expectations.
Vodafone expressly disclaims any obligation or undertaking to
release any updates or revisions to any forward-looking statements
to reflect any change in Vodafone's expectations with regard
thereto or any changes in events, conditions or circumstances on
which any forward-looking statements are based. No representation
or warranty is made that any of these forward-looking statements
will come to pass or that any particular result will be achieved.
Undue influence should not be given to, and no reliance should be
placed on, any forward-looking statement.
Unless expressly stated otherwise, no statement in the
Information is intended to be nor may be construed as a profit
forecast or valuation.
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.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
STRNKQBKKBKDDAD
(END) Dow Jones Newswires
June 14, 2023 06:04 ET (10:04 GMT)
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