Arun Sarin has stayed one quarter too long at Vodafone Group Plc., the UK-based telecommunications company. The outgoing chief executive officer’s valedictory results at the company have been tarnished by the rapidly deteriorating economic climate.
The global mobile operator is now warning investors to expect its full-year revenues to deliver at the low end of its £39.8-40.7 billion (Rs3.40-3.48 trillion) forecast range.
In an already nerve-wrecked market, the announcement sent Vodafone shares down 14%, dragging its competitors along with it.
Investors are rightly spooked. Vodafone only outlined its full-year forecasts just eight weeks ago. In the light of Sarin’s imminent departure—and in the interests of a smooth handover to his successor and current deputy Vittorio Colao—the market had assumed Vodafone’s guidance already erred on the conservative side. While Vodafone stands by its operating profit guidance, any revision in such a short space of time is worrying.
European growth is clearly stalling. The region accounts for almost 70% of Vodafone’s total revenues but was flat on a like-for-like basis against the same period last year. Vodafone’s biggest problem is in Spain. The mobile operator blames its 9% quarter-on-quarter decline in Spanish service revenues on the collapse of the nation’s once-booming construction market and subsequent exodus of immigrant workers—who account for up to 10% of the population.
Vodafone’s revised guidance only looks realistic if Europe’s mature telecoms industry doesn’t continue to deteriorate. That isn’t clear yet. In some ways the Spanish market is unusual because, unlike in the majority of other European countries, nearly double the number of users are billed by the amount of minutes/text messages they use rather than pre-purchasing so-called “bundles”.
Indeed, Sarin only averted a bigger farewell disaster, thanks to burgeoning growth in the emerging markets. His foresight in making transforming acquisitions in India and Turkey has buoyed the group. Mobile rivals who lack Vodafone’s geographical mix look like they could fare worse and investors expecting a resilient telecoms second quarter could well be disappointed.
It seems only fitting that the architect of Vodafone’s emerging market strategy makes way for Collao, the current chief executive for Europe, just as European growth appears to be running out of breath.