ARUN SARIN introduced his new finance man, Andrew Halford, to the City yesterday. During the course of four such meet-and-greet sessions with analysts it is intended that they should get a feel for where the post-Gent team is taking the mobile phone operator. Further into Eastern Europe, is the message that has come through this week. Vodafone is negotiating to spend £2 billion on businesses in the Czech Republic and Romania. There could be further acquisitions in the region to follow.
But what Mr Sarin was keen to convey to the analysts was that heading down the acquisition trail did not mean an end to the programme of returning cash to shareholders on which he has embarked. Cashflow in Europe’s biggest mobile operator is strong enough for both avenues to be open simultaneously. Last November the company doubled its dividend, and Mr Sarin is well aware that investors are enthusiastic that the share buyback programme should continue.
Vodafone, however, is not about to settle into being a dull moneyspinner. That is not an option, for the mobile phone market remains fiercely competitive and constant innovation is essential for success. That is one reason why those who continue to urge the company to pull out of Japan will be disappointed. While the company is finding it tough there, with customer numbers shrinking, Mr Sarin reiterated to the analysts that it may take another 12 to 18 months but he is sure that it can be turned around. In the meantime, being in the tech-attuned Japanese marketplace gives valuable insight into the technology that other countries will be wanting a couple of years down the line.
The ways in which people can spend money with mobile phone operators are multiplying, from sending photographs around the world to watching a full-length movie. Disposable incomes may be coming under pressure, and the decision by the MPC yesterday not to raise rates was influenced by the slowdown in consumer spending in UK stores. Mobile phone use, however, is so far proving impervious to tightening consumer spending. There is resistance, though, to the heavy charges that can be incurred when mobile phones are used overseas. An experiment Vodafone launched yesterday in Germany might provide a prototype for the future. Instead of bills escalating by the minute, there would simply be a one-off connection charge and the call itself would be charged at normal rates.
Yesterday, however, analysts were more interested in Vodafone’s global strategy than any efforts to forestall the European Commission’s investigation into “roaming” charges. What, they wanted to know, is the game plan in the United States after that aborted attempt to buy AT&T’s mobile business? Joint ventures are rarely perfect. The one with Verizon is successful financially, so Vodafone would like to increase its 45 per cent stake. For the same reason, Verizon would like to lift its 55 per cent stake. The result is that nothing is likely to change, at least in the short term. Mr Sarin’s position is pragmatic: he will wait and see what happens, enjoying the profits in the meantime. Further consolidation in this sector will come eventually.
Since he arrived at Vodafone, and investors got over the AT&T shock, the company’s shares have moved virtually in line with the market while UK rival mmO2 has streaked ahead. Part of the job description that has been drafted for Mr Halford is to help to widen the shareholder base, spending a chunk of his time talking to potential investors in the United States and Europe. Yesterday’s City chat was just a warm-up for the task ahead.
Slow lane in a single market
NEELIE KROES cannot have needed much Dutch imagination to decide that the EU’s financial services and energy markets should be the first investigated under the beefed-up competition regime. In financial services, the single market has had little practical effect. Scores of directives have been promulgated to harmonise rules and encourage cross-border trade but they have served only to raise costs and complicate action.
Different local practices, preferences and tax regimes, along with prejudice against foreign providers, dominance by big banks in several countries and naked protectionism in others have conspired to leave this potentially mobile market static.
Most energy markets were dominated by present or former state utilities. Market regulation can be calibrated to suit whoever the authorities please. Britain has tried to dislodge incumbents. Most have tried to protect them until they have become sufficiently efficient and entrenched to see off unwanted outside competition. Germany, home of multi-utilities that now supply much of Britain’s electricity, is only just getting round to competitive regulation. In France, deregulation is timed to make sure outsiders will not prosper. Unless Ms Kroes equates dominant shares with lack of competition, which is hard to prove, she may just have to prod governments to stop their time-wasting on reform.
Charlie McCreevy, the Irish Internal Market Commissioner, has conceded that cross-border retail banking will be a slow burner. He has switched the focus to expediting cross-border takeovers as an alternative to the wave of national mergers.
ABN Amro, the Dutch bank, has a test case in Italy. No foreign bank has managed to buy a majority stake there since 1993, when Antonio Fazio became governor of the central bank. Italians claim they are far from being the most protectionist and point to the public sector controlling two thirds of German retail banking. It is hard to imagine Barclays being allowed to buy either of Ireland’s top banks, though French or Italians just might.
Mr McCreevy, a pragmatist, may stick to his so-far frustrated quest to persuade banks to install a eurozone clearing system so that citizens can at least pay in or cash a cheque as though it were domestic. That would make a practical start. As Britain has found, however, banks are reluctant to invest money on clearing to help customers at their expense.
Not for sale
AS PRIVATE equity firms look for the next tasty morsel on the high street, one store group should be immune from their attentions. Having just been awarded bonuses equivalent to seven weeks’ pay, the partners at John Lewis are probably very happy that their business should remain a partnership.
Away from the short-term demands of the stock market, JLP has been able to invest for the long term, and the 24 per cent increase in pre-tax profits for the year show how that can pay. The Waitrose supermarket business is storming ahead, helped by record levels of investment. Ocado, the delivery business, is reducing its losses while building huge customer loyalty for its premium service.
The department stores managed to lift profits by 8 per cent, despite a meagre lift of just 1 per cent on sales. Outside investors would never have countenanced the huge investment the group made in refurbishing the Peter Jones store in Sloane Square but customers are spending much more money there.
Now the dated Jonelle brand is to be scrapped. The partners have decided that it is the John Lewis label that sells goods.
HYDIE SUMNER, having successfully sued Merrill Lynch for sexual discrimination, is now demanding that she be reinstated in her broking job at the bank. Ms Sumner, who was awarded damages of $2.2 million, says that she wants to help other women who may be suffering as she did. Merrill may be told they must give her back her job but she should not expect a red carpet welcome. While there may be some who regard her as a heroine, even in investment banks a $2.2 million cheque may be a cause of jealousy. If she meets with unpleasantness, could she sue and double her money?
