RE: Sat Telegraph article on VOD11 Nov 2018 23:23
Vittorio Colao’s departure from the telecoms giant earlier this year represented the end of an era. The world’s second largest mobile operator was undoubtedly reshaped during a decade of deal-making under the towering Italian.
The question is whether it was for the better or worse: did he leave behind a digital communications powerhouse fit for the 21st century? Or a below-par utility over-exposed to Europe’s moribund economies? Judging by the share price, investors are leaning towards the latter.
Shares in Vodafone are at their lowest level since the dark days of the financial crisis, having tumbled 38pc since the start of the year from 233p to 144p.
This week is Read’s first opportunity to set out his stall. He must seize it with both hands. Vodafone’s debt is too high and getting higher. This becomes an even bigger issue as its share price goes the other way, fuelling concerns among bondholders and lenders about how manageable the burden is.
At the moment, it still is, but the forthcoming takeover of Liberty Global’s German operations will add a further €8bn to a balance sheet that already has a juicy €21bn already parked on it.
Forthcoming 5G spectrum auctions could require further leverage; a recent one in Italy was much more expensive than expected.
At the same time, earnings are set to come under further pressure as competition in both Spain and Italy – two important markets – gets tougher, and its UK arm continues to struggle despite fixing ITV problems.
Read has limited options to alleviate the financial strain, which as finance director for more than four years, has his fingerprints all over it. He is unable to sell any of Vodafone’s emerging markets assets given current low valuations. One option could be to offload its share of a joint venture with Liberty in the Netherlands but performance has been disappointing and Liberty’s John Malone would drive a hard bargain.
Read has suggested he could sell masts, but ratings agencies will view this as financial jiggery-pokery.
The most obvious move is to cut the dividend but Read is expected to resist pressure to slash a payout that is among the most generous in the FTSE-100, and has increased every year since 1998. With few other options on the table, he may be delaying the inevitable.
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