Vodafone (VOD) leads the FTSE 100 fallers list on Tuesday after reporting typically complex annual results and on the surprising news that chief executive officer (CEO) Vittorio Colao is to leave after 10 years running the business.

Shares in the mobile giant are down about 3% in early trade to 200.8p. This puts the market cap at £53.5bn but outside the top 10 largest UK quoted companies by value (currently 11).

Colao has a seemingly ready-made replacement in Nick Read. He’s currently the chief financial officer so is well known in City and investment circles. He’ll take the top job on 1 October.

TIME RIGHT FOR CHANGE

On the face of it this appears to be sensible timing for change.

Colao has returned the company to organic growth and decent cash generation by focusing on core geographies and investing in next generation fixed and mobile networks and unified communications as well as digital transformation and operating efficiencies.

This has led to a mixed full year to 31 March 2018 operating performance, although one that looks pretty decent overall. Vodafone reported a 1.4% fourth quarter increase in service revenue, ahead of forecasts of a 1.1% rise, plus an 11.8% increase in earnings to €14.7 bn.

BETTER CASH BACKING FOR DIVIDENDS

There’s also a much better free cash flow performance thanks to capex declines, free cash flow improving 34% to €5.4bn before network spectrum investment (up 22% to €4bn if mainly UK and Italy spectrum is included). That will ease pressure on the 6%-yielding dividend, one of the stock major attractions.

Having finally sealed what looks like a significant and strategically beneficial European cable network deal with Liberty Global, Vodafone now looks to be in a far stronger position in a converged digital communications future.

UK REMAINS A HEADACHE

But if Read faces one challenge above all others it is likely to be in his former UK stomping ground, where he was previously the divisional boss.

‘The UK remained the sick man of Europe during 2017/18, with service revenues down 3.6% organically to €6.1bn, versus growth of between 1% and 2.6% in the other main markets,’ says Megabuyte analyst Philip Carse today.

Handset financing has been among the UK challenges, according to UBS analysts.

With fierce competition in the UK from Sky (SKY), and EE strengthened BT (BT.A) and Virgin Media, ‘Vodafone UK is playing catch up,’ believes Megabuyte’s Carse.

Investors might wonder if Read might get Liberty Global’s John Malone back on the phone sooner or later to discuss Virgin Media’s future. It’s UK cable network and content portfolio looks a pretty attractive fit for Vodafone’s UK arm.


Issue Date: 15 May 2018