An upwardly mobile pioneer
PROFILE SIR GERALS WHENT Vodafone's chief is still selling the cellular message at 69, but as the market maturesWilliam Kay finds him heading towards the exit profile
Sunday 12 February 1995
The declaration came as a surprise to a stock market audience that had become used to continuous profit increases, no questions asked. Because only the true aficionados normally queried anything, few ordinary investors were in a position to understand the nuances of what Sir Gerald was saying.
He explained: "It is something that is happening in the market place. It is just simple mathematics. You don't have to have a PhD to understand it and, as soon as the market understood it, the shares came back up."
The "it" Sir Gerald was referring to was the sales commission structure of mobile phones, which, judging by the stock market's instant reaction, had until then been a closed book to most professional investors. The Vodafone share price, which has been zigzagging for several months after two years of rocketing growth, plunged by a tenth, as the market struggled to divine the drift of Sir Gerald's message.
Basically, as with life insurance, the commissions paid on mobile phone sales temporarily wipe out the profit. In the case of the phones, that profit comes through as call charges mount.
So Sir Gerald was signalling that there would be a strong increase in profits in the year to March 1996, but the sales commissions mean that the current year's profit will be more subdued. The analysts have taken that to mean only a marginal improvement in last year's £363m profit, but a jump to as much as £520m next year.
The shares steadied as fund managers digested this, and then largely recouped losses when US investors weighed in to take advantage of the dip. At 191p, they are now higher than when Sir Gerald made his statement. But he concedes that the game is changing. The mobile phone market is moving beyond its initial base of travelling business people to private users.
"It doesn't mean they're not jolly good customers, they are, but they're people who have telephones in their car for emergencies," said Sir Gerald. "Some ladies only take them out with them once a week, so they don't make a lot of calls." The result is that the average annual charge has come down from more than £700 to £550 and is going to go considerably lower than that.
"We are still getting tremendous growth," Sir Gerald insisted, "but it is lower margin."
As the Vodafone share price seems to be indicating, that means that the mobile phone market is moving from boom to maturity, with all that that implies in terms of aiming the sales message at the impulse gossiper rather than the high-pressure executive. Such a cultural switch will require a very different outlook and, arguably, different talents.
So, after largely fathering the mobile phone market in Britain, Sir Gerald, who turns 68 next month, is beginning to gauge the right time for his exit. "I want to leave Vodafone in a position to be making annual profits of £1bn by the year 2000," he admitted, "but I shall be long gone by then." Quite when, he has not resolved,and when he does he will first impart his decision to his co-directors.
Sir Gerald tries to give the impression of having had everything under control throughout his career - even his becoming Vodafone's chief executive, although he has inevitably had to bend the knee to the formidable Sir Ernest Harrison, in effect the founder of Racal Electronics, Vodafone's progenitor.
That was never more apparent than 26 years ago, in 1969, when Racal bought Controls and Communications, an electronics company where Sir Gerald was close to making his way to the top job.
Like any executive whose company is taken over, he had to endure a period of considerable uncertainty, but he brushes it off.
"I always knew I'd be running a company within the group," he recalled matter-of-factly. "I was destined to be so. I was almost there when they took us over - in fact, I was weeks away from it. But I took over Racal's biggest group, of many companies which I ran before we started this. I was labelled as a future MD."
Although Sir Gerald admitted to "a year's hiccup" while Sir Ernest sized him up along with the other managerial talent he had acquired with Controls and Communications, he is philosophical about the uncertainty that hundreds of executives undergo every year when their companies change hands over their heads.
"That's life," he said. "When you get taken over, you know, all promises are gone, nothing counts. You have three choices: you can leave and seek pastures new, you can stay very proud and take a five-year delay in your career - or you can join the opposition, as the people are who take you over. I joined the opposition. I quickly began to move on again, and possibly got my own company faster than I would have if there hadn't been an acquisition."
When he refers to his "own company", Sir Gerald is still talking in the context of the Racal empire. But Sir Ernest has paid tribute to his lieutenant's determination and ambition.
Sir Gerald has spent most of his life fighting his corner. He was born into an army family in India. He was the fourth child, runt of the litter, who was packed off to boarding-school at the age of 11 while his father went to war.
That was where he learnt his love of sport, becoming soccer captain while he scraped through his school certificate - a broad- based and tougher version of GCSE. "I was not very bright," he recalled, "but I was always leader of the gang."
While his brothers followed in their father's footsteps and rose to be colonels, Gerald quit the military life as soon as he completed his national service, and became a management trainee with Dent Allcroft, a glove maker. With possibly a dash of hindsight, he claimed to see the glove business being swamped by cheap Asian imports, so in 1962 he headed for Plessey, a trailblazer for the then fledgling electronics industry.
He also takes the credit for ushering Racal into mobile phones, firstly setting up Racal Telecom, then spinning it off as a separately quoted company renamed Vodafone.
"At one time, there was only me in this company," Sir Gerald pointed out. "As I was going to spend a fair amount of money, I did it with Ernie's blessing, but I was the prime mover."
Sir Gerald does not lay claim to any great vision of a future filled with folk walking up and down the street jabbering on their mobiles - and occasionally getting mugged into the bargain. Instead, he saw manna from heaven.
"Look, there was a gift of government going," he pointed out. "When you've been fighting the roughest, toughest companies in the world, as I was in running Racal's radio group, the thought of a licensed duopoly wasn't at all bad, especially as the other supplier, BT, had been used to being a monopoly."
More recently, he has been spreading the mobile phone gospel to other parts of the world - 11 countries so far, with two more to come, concentrating on more loquacious regions.
"We're in Greece, where they tend to be verbose," Sir Gerald said, "and Hong Kong. The Chinese are of the same ilk as the Mediterraneans. They love to talk."
He has also taken Vodafone into South Africa, where the group is using radio telephony to produce a low-cost phone system for the townships.
If Sir Gerald has his way - and he usually does - he will be seeing a lot more of that part of the world in the next few years, as a globe-trotting rugby and cricket spectator, with some top-class horse racing thrown in.
"I shall just do more of what I do now," he explained. "Instead of watching one Five Nations rugby match a year, I shall watch five, 30 race meetings a year instead of 10 and so on. When you've been criticised all your life, it will be lovely to be a critic."
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