Nick Read, chief executive of Vodafone, was pushing his luck in describing the group’s first-half performance as “resilient”, a word nobody would apply to the share price on his watch. He inherited 150p when he was promoted from finance director in 2018 and the poor old shareholders are now looking at 96p, down a thumping 8% on Tuesday.
Since 100p is virtually the lowest the shares had been in the past 20 years, a sense of brewing crisis is unmistakable. Once upon a time – albeit well before Read’s time in charge – Vodafone was the UK’s largest quoted company. Now it is 19th in the FTSE 100 pecking order.
The usual plea in mitigation is that the telecoms market is horrible for every operator everywhere. And, in the round, that’s true. Price increases in a “more for less” industry are always hard to achieve, thus shocks on the revenue or cost line are felt immediately. Covid and accompanying lockdowns whacked roaming charges. Now higher energy costs have added €300m (£262m) to Vodafone’s bill this year, so Tuesday’s downwards nudge in full-year forecasts was hardly a bolt from the blue.
But investors’ frustration with Vodafone runs deeper. The company seems perpetually to fail to meet its potential, while simultaneously claiming a breakthrough lies just around the next corner. Read’s contribution to the overpromising agenda was a bullish presentation a year ago that declared that Vodafone was “structured for value creation” and that “portfolio actions” – dealmaking, in other words – would “improve returns at pace”.
One can’t quite say nothing has happened since then. The Hungarian operation has been sold, a bolt-on acquisition has been made in Portugal and last week Vodafone unveiled a sell-down of its majority stake in Vantage Towers, its German-listed mast business, that may yield the thick end of €6bn. It’s just that none of those actions has been enough to shift the dial at a group carrying net debt of a remarkable €45bn.
The Vantage transaction, which will create a joint venture with private equity, is immensely complicated and the glaring omissions from the deal-doing have been transactions in Spain and Italy, seen as the priorities given their sub-par competitive positions. In Spain, Vodafone was outflanked in the last round of market consolidation; in Italy, it looked at a deal and rejected it. Hopes are now pinned on the UK, where combination talks are happening with Three; UK competition regulators, though, represent a hard-to-read obstacle.
Meanwhile, the one thing investors thought they knew about Vodafone was that its German operation, 30% of the group’s revenues and home of an €18bn cable acquisition in 2018, could be relied upon in all weathers. The company, after all, enjoys the biggest market share in Europe’s biggest telecoms market.
The half-year numbers, though, showed German profits down 7% with “operational challenges” taking the blame. It seems that Vodafone didn’t have IT systems in place to adapt quickly to new consumer legislation. Local management has been changed, and a rebound promised, but the episode will fuel the other big criticism of Vodafone: that it is a telecoms conglomerate that moves slowly.
Read is now offering a fresh €1bn-plus group-wide target for cost savings but, as the share price indicates, it’s needed. Round numbers shouldn’t matter, but they are noticed. Aside from soggy market conditions, sub-100p feels like a case of shareholders hanging up on Vodafone’s pledges to reinvent itself as a slimmer company with a smaller debt pile. Read was paid £4.2m last year and £3.5m the one before. When you’re paid the big bucks, you have to deliver. He is running very short on time.
Sterling’s rally shows old hands know best
In those mad late-September days of Liz Truss and the mini-budget, when the pound briefly fell to $1.04 against the dollar, a few wise old hands trotted out the traditional advice: at two to the dollar (as in 1992 and 2007), the pound is a raging sell; at close to parity, it’s a buy.
Well, the rule of the thumb worked again – so far, at least. Sterling briefly touched $1.20 on Tuesday before settling at roughly $1.19.
The latest leg of the rally, it should be said, is mostly a tale of dollar weakness amid hints from US Federal Reserve officials that the pace of US interest rate increases will slow. But, for rule-followers, explanations are irrelevant. Barring a calamity at Jeremy Hunt’s autumn statement on Thursday, they can chalk up another win.