The number is up for Vodafone chief executive Nick Read, an outcome that has felt inevitable for ages. When the boss is collecting £4.2m – his remarkable remuneration last year – there’s only so long investors will tolerate the lowest share price this century. Even Vodafone’s docile board of directors had to recognise a signal of sinking confidence.
The shares have crashed 40% on Read’s four-year watch to sub-100p, which is a shocking statistic despite the weakness in the entire telecoms sector. His refrain for the past year, remember, has been about how Vodafone is “structured for value creation”. Instead, his departure coincides with a fresh debate in the City about whether the debt-laden company can afford its dividend – the one Read himself cut by two-fifths three years ago. A yield of 8.5% says the answer is far from clear.
The last straw was probably last month’s confession of a cock-up in Germany, described in Voda-speak as “operational challenges”. The company failed to adapt its IT to a change in consumer law in its biggest territory; fleeter-footed rivals took the opportunity to grab market share. The episode reinforced the impression of a complacent conglomerate struggling to keep up with local operators.
None of which is to pretend that this stuff is easy. European telcos wish their landscape was more like that of the US, which has only three large mobile firms to cover the entire country. In Europe’s collection of smaller markets, “four-to-three” mergers require a dance with regulators, which may be what’s in store in the UK if Vodafone’s current talks with Three produce a proposal. But you have to play the hand you’re dealt.
Read made a few moves – he sold Hungary, bought more. In Germany, he demerged the Vantage masts operation – but made it all look a slog. A deal in Spain, which was thought to be a priority for exit or joint venture, hasn’t happened. Chairman Jean-François van Boxmeer was presumably nodding in that direction with his reference to how stand-in boss, finance director Margherita Della Valle, has been told to “accelerate the execution of the company’s strategy”.
At this stage, though, frustrated shareholders might prefer an honest re-examination of the entire strategy, as opposed to doing the same things a bit faster. A more ambitious approach would surely require the appointment of an outsider rather than another promotion of the finance director, which was Read’s background.
Vodafone insiders might view a bigger breakup as a counsel of despair, but only the UK, German and Italian operations truly command the City’s attention. It’s not hard to think of more candidates for disposal to close the yawning discount to the perceived value of the parts: the two-thirds stake in South African-listed Vodacom, for instance.
Van Boxmeer, as a former Heineken lifer, was an unlikely appointment two years ago to a large telecoms company. Before ousting Read on Monday, he had been almost invisible in the City. If he has suddenly discovered a radical impulse, he should keep going. Vodafone desperately needs a free-thinking chief executive.
Thames Water’s glacial progress
An eight-year turnaround plan is nobody’s idea of a quick fix. So it’s not encouraging to hear from Thames Water, only half way through year two, that “unprecedented external pressure” is impacting performance. Chief executive Sarah Bentley reckons targets to reduce leaks will be “really challenging to achieve this year” and that water quality measures have not been hit.
One can understand the explanation, of course. Droughts cause ground to dry, which leads to bursts; and the lack of rain in the summer of 2022 was exceptional. On top, the company, like its peers, faces higher prices of everything from energy to chemicals.
The good news of a sort is that the shareholders (mostly not the ones who piled up vast debts to fund dividends for themselves) are finally putting in cash to finance the turnaround efforts. The £500m promised in June should arrive by March; and another £1bn slug is scheduled thereafter.
The bad news is that Thames should never have descended in its woeful financial and operational state in the first place. One can (and should) blame corporate greed and financial engineering, but the other half of the story is regulatory timidity on the part of Ofwat and the Environment Agency. More than 30 years after privatisation, there should not be problems at the UK’s largest water company that need eight years to resolve and may, on current form, take longer to fix.