Make-or-break presentation for Arun Sarin

Arun Sarin, Vodafone’s chief executive, will on Tuesday make perhaps the most important presentation of his working life.

At Vodafone’s annual results, Mr Sarin must convince investors that he has the right vision for the mobile phone operator after warning of deteriorating financial performance.

Some big institutional investors say the results, together with Vodafone’s long-awaited statement on future strategy, are make-or-break for Mr Sarin.

They want to see convincing plans for how Vodafone is going to deal with fierce competition in the telecoms industry and rapidly changing technologies. Vodafone issued a warning last November that its profit margins would decline during 2006 and 2007. It also said revenue growth and free cash flow would decline in 2007.

Investors’ concerns intensified when Vodafone cut its 2007 revenue growth forecast again in February.

This was followed by allegations of boardroom infighting, which culminated in a rare expression of support for Mr Sarin by Lord MacLaurin, who will stand down as Vodafone’s chairman in July. However, Sir Christopher Gent, Mr Sarin’s predecessor, resigned his honorary role of life president with a barbed attack on “company politics and blame culture”.

Investors’ nerves were further frayed by last week’s announcement that Penny Hughes, a non-executive director, is leaving Vodafone’s board in July.

One of Vodafone’s top 10 shareholders claimed Ms Hughes’ departure meant there would appear to be no one left on the board prepared to challenge Mr Sarin’s views.

At Tuesday’s annual results, Mr Sarin is expected to set out plans for Vodafone to move beyond its mobile-
centric past by offering high-speed internet access to customers over landlines. This is unlikely to involve Vodafone buying fixed line networks because it plans to lease broadband capacity from other companies.

Mr Sarin will also outline plans to bolster slowing revenue growth in its core European markets by increasing customers’ use of mobiles.

Vodafone is to expand a service developed in Germany under which customers can use their mobiles to make calls at rates similar to those on fixed line phones when they are within a 2km radius of their homes. They only have to pay higher mobile rates when outside the zone.

Vodafone may also seek to placate investors by signalling it is scaling back its acquisition activity after forays into emerging markets last year. Some thought Vodafone paid too much for Telsim, Turkey’s second biggest mobile operator.

Mr Sarin is also likely to be pressed about Vodafone’s intentions on its 45 per cent stake in Verizon Wireless, the second biggest mobile operator in the US. Ivan Seidenberg, Verizon’s chief executive, has made buying Vodafone’s stake one of his top priorities, and Mr Sarin is believed to be willing to countenance a sale.

However, Mr Sarin is in no hurry, partly because of Verizon Wireless’ strong performance. Verizon is believed to be willing to pay as much as $45bn (£24bn) for Vodafone’s stake.