Vodafone: jam tomorrow
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Announcing a 15% increase in the interim dividend and an extra £2bn of share buybacks for the year would make most chief executives expect increased trading in their firm’s shares.
But few would anticipate a record number of trades and a share slump of more than 10%.
Yet that is what happened to Vodafone this week. Although revenues rose by an underlying 6.3% to £18.3bn, chief executive Arun Sarin also announced that margins would fall towards the bottom of a forecast range, while revenue growth would decline “slightly” in the year ending March 2007.
Furthermore, he told the market about £5bn in one-off tax payments relating to Vodafone’s buying spree in the late 1990s and painted a depressing picture of Vodafone Japan, which amid stiff competition from NTT Docomo has become “the biggest drag on the firm’s performance”, said Harry Wallop in The Daily Telegraph. Now, instead of reaping the rewards of the ‘One Vodafone’ programme in 2006 – based on the idea of harnessing global scale – investors are being promised strong results from 3G in 2007, said Mike Verdin on Breakingviews.com.
Sarin insists that the 3G story is still a good one. On average, 3G customers spend 10%-15% more than their traditional counterparts. But they also have to be tempted with “free, swanky handsets”, said Wallop – hence falling margins. Overall, margins fell as the firm spent 24% more on getting and keeping customers. So although the shares might be oversold at 10% down, Sarin’s job of persuading investors of the “jam tomorrow story just got a whole lot tougher”, said Jeremy Warner in The Independent.
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