Business Watch: Vodafone investor unease


Vodafone’s US and France units concern shareholders, but rebellion averted by decent results, especially in UK

Vodafone has had a tough ride from its investors of late.

A large shareholder from Canada has tried to unseat the chairman, Sir John Bond, blaming him for Vodafone’s “significant structural and strategic weaknesses… and history of poor capital allocation and disastrous mergers and acquisitions”.

Sir John saw off the campaign by The Ontario Teachers’ Pension Plan at Vodafone’s annual meeting even though the rebel shareholder managed to get support from 6.5 per cent of investors.

At the meeting, the former HSBC chief executive was forced to defend his role at Vodafone when a shareholder told him the revolt carried a “great deal of damage”.

The veteran City bigwig replied, cooly: “I am standing for re-election at this meeting. Therefore you should deduce that I do not plan to stand down.”

The OTTP was particularly unhappy that Vodafone slashed the book value of its Indian business by £2.3 billion in May, just three years after gaining control of the business.

That deal was struck by former chief executive Arun Sarin, who is now long gone.

His successor Vittorio Colao (pictured), received the Canadian fund’s backing. More significantly, Vodafone indicated prior to the meeting that it is willing to consider the potential sale of some of its minority stakes overseas.

Colao said at the first quarter trading update to state that the investments are “non core”. That includes its group owns a 45 per cent stake in US mobile operator Verizon Wireless, 3.2 per cent stake in China Mobile, and 44 per cent holding in French mobile group SFR.

The problem, as Bond pointed out, is that Verizon Communications, which owns the other 55 per cent of Verizon Wireless, is the only likely buyer for the Verizon Wireless stake.

If Vodafone showed “any weakness” it would get a low-ball offer, he added. Colao also pointed out that Verizon Wireless has performed well.

Those are all fair points.

And yet it’s increasingly clear that Vodafone’s lack of management control in the US and France is really getting to some of its big investors, some of which have been waiting years for action.

But in a piece of happy timing, the company helped to quell a larger rebellion by reporting a decent set of first quarter numbers ahead of the meeting.

And it was Vodafone UK that was the star of the mobile giant’s European operations in the three months to June 30.

It was the only one of four countries to report a year-on-year increase in revenues, logging a 0.7 per cent rise in turnover to £1.2 billion.

Colao was delighted with the results, which helped the group’s overall service revenues to rise 1.1 per cent to £0.6 billion.

“These are the first quarterly results to show service revenue growth since the global recession impacted,” he told long-suffering investors.

“We have achieved these results through our continuing commercial approach in key European markets, focusing especially on data, and from strong growth in emerging markets, with India now cash positive at an operating level and our highest ever quarterly revenue in Turkey. The financial outlook for the current year is confirmed.”

In contrast to the UK’s performance revenues fell 5.5 per cent and nine per cent in Italy and Spain respectively, while Germany managed slightly better, with revenues down 2.8 per cent – or 0.2 per cent on an organic basis.

It was the third successive quarterly improvement from the UK and Germany and a sign that the worst effects of the global financial crisis have washed through Vodafone’s accounts.

The UK performance was driven by strong data revenue growth of 27.8 per cent as the business sold more mobile internet bundles, continued growth, grew the contract customer base and enjoyed improved roaming trends.