Text and the City: Vodafone's CFO, Andy Halford

Photo: Anton Hammerl

“There are six-and-a-half billion people on the planet,” says Vodafone’s chief financial officer, Andy Halford, “and none of them had a mobile phone 25 years ago. I think it’s nearly four billion people that now have them ­ and it’s still growing by the day.” These are, as he says, “absolutely huge, huge numbers”.

Moreover, you can but imagine the frenzied pace of growth that the business has been through. When telco stocks were going nuts, it was one of the top ten companies in the world by market capitalisation. Even long after the dotcom bust Vodafone is ranked fourth in the FTSE-100 behind decades-old multinational titans HSBC, Shell and BP.

So it’s striking to realise that Halford is only the company’s second CFO in its entire corporate history. His predecessor, Ken Hydon, “joined the business before I think a single invoice was sent to a single customer,” Halford says. Hydon, therefore, had the pleasure and glory of taking the company from nothing through to its London flotation in 1988, then launching the business on a global expansion spree, particularly into Germany by way of its acquisition of Mannesmann, and into the US with Verizon.

Halford, on the other hand ­ though he still has plenty of growth to contend with, to say nothing of the cash flow tapped out by ‘Generation Text’ subscribers around the world ­ hasn’t had it quite so easy since he was promoted to the top finance role in 2005 on Hydon’s retirement. First, there was the realisation that the hideously expensive 3G licences were proving slower to pay back than had originally been anticipated.

Then there were some board level ructions as then-chief executive Arun Sarin struggled to keep in with the City having recently succeeded the popular and acquisitive Christopher Gent. Sarin and his new FD, Halford, were in the spotlight as they tried to explain a £2.5bn cost-cutting plan, while also giving details of a potential £5bn tax bill, relating to the controlled foreign companies rules. The share price reacted much as you’d expect. As time went on, it didn’t help that Gent, himself, chose to criticise his successor, Sarin.

This created exactly the right sort of environment for activist shareholders to huff and puff, demanding disposals and vast amounts of debt to fund a return of cash to shareholders. (Ironically, the troublemaker-in-chief was John Mayo, former FD of the shattered Marconi electronics business.)

“The first year it felt a little bit like an interesting baptism by fire,” Halford says quite laconically. “But, you know, we got through that and, a couple of years later on, here we are.” Good thing Halford likes the investor relations role that comes with the job, especially since there are around 1.5 million shareholders to talk to: “At the time [it was] something which just needed a lot of time putting into it,” he explains. “I actually thoroughly enjoy the communication side of the job both externally and internally within the business, so I suspect I actually put in a lot more time on the investor side than maybe had been the case previously.”

Halford must talk a good story because the sniping stopped, the rebels went away and the company is back in favour with investors again. It helps, Halford explains, that City investors’ attention is more focused on other, bigger problem areas in their portfolios. “We were very much in the limelight, so it’s quite nice not to be in the limelight.” he says. It also helps that the company is one of the few remaining really big dividend payers: “When we turn up and say [we have] £5bn to £6bn a year of free cash flow and we are continuing to pay dividends and we have a progressive dividend policy, you can see them relaxing.” In 2007-08, the company wrote dividend cheques to its investors totalling £4bn.

That’s quite an achievement given the £30bn of debt in the balance sheet. Mayo’s camp wanted the debt levels to go even higher, up towards or even over £50bn, so that yet more cash could be returned to shareholders. “We would have some real challenges at the moment if we had done that, so I am very glad we didn’t heed that advice,” Halford says.

Expansion slowdown
It would be wrong to suggest that this debt-laden business has gone ex-growth, but certainly, some bits of it are more mature than other bits. Even before the current economic crisis, Vodafone was having to shake down its cost structure after a long period of expansion in which management focus was on the next deal, rather than getting the most out of the last. But when we ask Halford what, if anything, keeps him awake at night, he says without a blink, “recessions” (a word we find disturbingly plural).

Halford makes the point that this is the first recession Vodafone has experienced. The last time there was a downturn, the business was UK-centric and growing so quickly that it simply didn’t notice what was going on in the rest of the economy. Things are a different now. “Just how much that hits the business and how quickly we can respond by taking cost out of the business is the number one area that we have to be very focused upon.” He adds: “I don’t lose sleep over it, but, you know, it’s an area of big focus.”

Certainly, the company has noticed that people aren’t so quick to upgrade their handsets these days ­ “which in some sense is not actually a bad thing for us because we subsidise the handsets” ­ and there is less roaming traffic because fewer people are travelling abroad. Corporate customers are, of course, being tougher negotiators ­ and because of their own job losses, perhaps not needing so many handsets. “But against that,” he says, “we’ve been pretty strong on winning multinational accounts: people coming to us and saying, ‘We operate in five countries, we have got five different providers: could we standardise with one party?’”