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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?’”

We may call it a global recession, but Halford points out that, while the
business has been “slightly negative on revenue growth in Europe”, in places
such as South Africa and China, “it is a question of how fast you can put a
network up”. There’s double-digit growth in India and Egypt, too ­ and even the
US.

Last November, Halford made a commitment to shareholders to generate free
cash flow of £5bn-6bn a year over the next several years. “If we can do that
even during the depths of recession then we think this is a strong business.”
The levers he can pull include scaling back on a fairly hefty capital
expenditure programme, “albeit you have got to balance the short and the long
term.” Beyond that, he says, it’s a case of “squeezing all the pips everywhere
else to make sure that the cash is still coming out in reasonable substance at
the bottom.” The first results of this will be seen at the end of May, for the
year to end-March.

Extra income
Verizon is a heavily-indebted but hugely cash-generative business in which
Vodafone has a 45% stake ­ but no dividend stream. At some point, though, this
will be an additional source of cash for Halford. (Vodafone has the right to
appoint one director to the board ­ which is why, in 2002, Halford found himself
in New York as CFO. “I arrived as the one Vodafone person with the other 29,999
all working for Verizon Communications, the other major shareholder.”)

Halford is starting to take better advantage of Vodafone’s global scale,
having established a centralised procurement operation in Luxembourg to handle
purchases of big-ticket things such as network and IT equipment and other
services, but not (for now) handsets which, he explains, are “the most tailored”
items for local markets. There is also a shared service centre in Hungary and
another is being set up in India.

Halford is big on standardising processes across the group and is currently
two-and-a-half years into an SAP installation programme.

With or without standardisation, though, this is still a huge, complex
business for any FD to control properly. We ask whether his role is really more
akin to being chairman of a number of specialist sub-committees. “When I was
first appointed into the role, I remember one of the non-executives saying to
me, ‘This may be the first time in your life that the majority of people who
work for you will know more about their subject areas than you are ever going to
know ­ but you should not in any way see that as a negative,’” he recalls. “What
is key is that you understand enough to be able to get involved when you need to
get involved, and basically to leave them to run the job the rest of the time.

What has really struck me is, this is hugely about quality of people: it is a
very big organisation and if you have first class people there, then you can do
a lot of things – and particularly in the tax and treasury space.”

Talk of treasury matters takes us to the banking crisis and counterparty risk
in the City. Halford admits they lost a bit of money in one of the bank
failures, “but in the overall scheme of things it was very small. Our treasury
team did a fantastic job in making sure that where we had exposure we generally
managed to extract ourselves ahead of time.

But quite clearly it is an important part of the business and one which we
are very focused on.”

On the broader issue, we wonder what Halford, from his viewpoint as a finance
director in a huge, complicated business, thinks that his opposite numbers were
doing in the banks. Did they take their eye off the ball? Did they get swamped
by detail? “If you look at different sectors at different points in time, the
competitive environment gets tougher, margins become narrower, people become
more creative and thinking of different products and different ways of expanding
the business,” he says.

“Some of those can end up with the risk-reward balance becoming a little bit
more stretchy. My impression is that in financial services there has been some
incredibly bright people who have thought of some incredibly complex structures
which have at one level sounded absolutely fine, but when they are aggregated,
you get the impression that relatively few people really understood the full
complexity of what was being undertaken and the likelihood of it unravelling.

“I am to the heart of your question very glad that I didn’t go into the
financial services sector and I am very comfortable that in this sector and this
business, there are areas that are complex ­ but nothing, nothing like that sort
of degree of complexity.”

Curriculum Vitae
Name Andy Halford
Age 50
Qualification FCA (1983)

CAREER
2005– Vodafone, CFO
2002-05 Verizon Wireless, CFO (45%-owned by Vodafone)
1999-2002 Vodafone, FD of various businesses including UK,
northern Europe, Middle East, north Africa
1992-1998 East Midlands Electricity, business development
director, group IT director, then group FD from 1997
1980-1992 Price Waterhouse, UK & South Africa

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