Global Insight Perspective | |
Significance | The new Vodafone top-dog has made the increase of a stake in Vodacom South Africa his top priority, continuing the emerging-markets expansion policy of his predecessor. |
Implications | Talks to obtain control of Vodacom South Africa are already underway, and further emerging market expansion is likely. |
Outlook | In the short-term, commercial policies will be adjusted in order to help the group meet its end-year revenue and cash-flow guidance. |
Incoming Vodafone CEO Vittorio Colao made plenty of positive noises about the group's strategy, following its annual general meeting (AGM) in London yesterday, with an increase in its Vodacom South Africa stake high on the agenda, but there was an underlying caution to his words. Colao indicated that he was keen to complete the purchase of a 12% stake in Vodacom South Africa, which would give it overall control, with talks underway between the two groups. He spoke highly of the prospects of emerging markets, and gave no indication of any plans to divest the group's 45% stake in Verizon Wireless. However, he indicated that macroeconomic conditions could bring about an "adjustment" of commercial policies, and did not rule out job cuts, as the group strives to meet its full-year revenue and cash-flow guidance.
Outlook and Implications
- New CEO Looking To Mark Entrance With South African Purchase: Following Vodafone's harrowing 15% share-price drop last week, it has already acted boldly with a £1 billion (US$2 billion) share buy-back, approved by 99% of shareholders at the AGM (see World: 23 July 2008: Vodafone Launches US$2-bil. Emergency Share Buy Back). Now Colao appears determined to mark his entrance in style by completing the purchase of a further 12% in Vodacom South Africa. Outgoing CEO Arun Sarin helped to offset sluggish European performance by his forays into Turkey and India, and Colao is similarly keen to follow the emerging-market route. Although noting that some emerging markets, such as Russia and Brazil, offered little opportunity for entry, he confirmed "we are interested in Africa … we have an African strategy", a statement lent credence by the group's move to expand its African portfolio in Ghana, earlier this month (see Ghana: 14 July 2008: Government Renegotiates Ghana Telecom Deal, Reduces Stake to 50%). The process of increasing its stake in Vodacom South Africa has been simplified by the news earlier this week that a number of black economic empowerment (BEE) groups and investors have obtained shares in the African group, removing one likely proviso Vodafone would have had to have met (see South Africa: 29 July 2008: Vodacom South Africa Completes BEE Deal). South Africa is unlikely to be the extent of Colao's emerging-market expansion drive, as he stated that strategic acquisitions would be made in "new territories, wherever we see new opportunities".
- Drive to Meet Financial Targets to Herald Adjustment of Commercial Policies: Aside from its international expansion, Vodafone also has the pressing concern of meeting end-year financial targets, with macroeconomic conditions cited as a reason why the group will look to adjust its commercial policies. Possible adjustments mooted by Colao include such measures as "less fancy handsets" in some markets, as well as more SIM-only deals, lower prices, and longer handset renewal times, as the group seeks to help customers cope with challenging economic conditions. Notably, Colao refused to rule out job cuts as part of the cost-cutting process, when pressed by reporters. However, having stressed that full-year revenue is likely to be at the bottom of its £39.8-40.7 billion forecast, the group remains confident of meeting its operating profit and cash-flow guidance, through its cost-reduction policies as well as emerging market and data revenue growth.