Vodafone braces itself for market storm

As the largest telecoms group in the world, Vodafone is rarely out of the news. The group, which will unveil its annual results on Tuesday, last year made headlines with its audacious takeover of German telecoms leader Mannesmann and earlier this month with the largest-ever share issue on the London Stock Exchange to accompany asset purchases from BT.

But it’s the controversy over bonuses paid to Vodafone’s bosses that created the biggest waves in the media. The group’s decision to award a Pounds 10m bonus to chief executive Chris Gent prompted a chorus of disapproval. Vodafone justified the bonus by saying its rewards for senior executives had for some time ‘been set below globally competitive levels’.

The company, however, bowed to criticism when the National Association of Pension Funds advised shareholders to abstain from voting at the July annual general meeting and pledged it would not make any further lump sum payouts to directors.

‘With the benefit of hindsight, I believe we may have explained it better,’ chairman Lord MacLaurin told investors at the agm.

Half of Gent’s bonus was for his part in the acquisition of Mannesmann, which operates the private mobile telephone net D2 in Germany. The Pounds 105bn all-share deal was seen as one of the boldest raids in European M&A history.

But from the highs of the Mannesmann purchase and the bumper results Vodafone had revealed just two weeks after the European Commission gave the deal the green light, came the slump in the telecoms sector.

The Berkshire-based company suffered along with the rest of the sector in an almost relentless market hammering.

European mobile operators became dogged with gloomy forecasts and by the burdens of costly third generation mobile licences (Vodafone paid nearly Pounds 5.9bn in the UK for its slice of 3G action).

Only last month the company announced a slowdown in customer growth in the first quarter of 2001 and said it expected the trend to continue. Gent said the figures in part reflected the adoption of a new commercial strategy that didn’t rely solely on customer growth to drive profits.

‘In the year ahead…we expect a slowdown in customer growth, as the group’s focus moves to margin improvement, customer retention and cash-flow growth, rather than customer growth and overall market share,’ he said.

Overseeing the improvements in Vodafone’s profit margins will be ACCA-qualified group FD Ken Hydon, who has considerable experience as a board member since 1985 and was previously FD at Racal Electronics, which demerged to create Vodafone.

With this renewed focus, Vodafone hopes to ride out the current market storm. Along with the company’s strong strategic position in 26 different counties and its courageous management team, Vodafone continues to be viewed favourably in the long term.


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