Jeremy Warner's Outlook: All aboard Vodafone's amazing cash machine

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Payback time. After spending hundreds of billions of pounds building and buying mobile telecom networks around the world, Vodafone has finally reached that stage of maturity where it has more money than it knows what to do with.

Payback time. After spending hundreds of billions of pounds building and buying mobile telecom networks around the world, Vodafone has finally reached that stage of maturity where it has more money than it knows what to do with. Once upon a time, this would have encouraged directors to go off on a renewed and even bigger spending binge. Not any more. Arun Sarin, the still relatively new chief executive, has listened to what his shareholders have had to say to him, and decided instead to start giving the money back to them.

The interim dividend is doubled, with the promise that the final can expect similar treatment. The share buy-back programme is also being enhanced with the net result that the amount of capital returned to shareholders will soar to £6bn this year, from £2.5bn last time. Such is the cash machine Vodafone has become that this still leaves him with more than enough to pay down debt, invest in 3G, submit to a lower dividend from Verizon Wireless in the US and, if the opportunity arises, buy out other shareholders in the French mobile phone company SFR.

When Mr Sarin succeeded Sir Christopher Gent as chief executive last year, it was widely assumed that he was as hot to trot as his predecessor, an impression he reinforced by immediately entering the auction for AT&T Wireless. Wisely, he withdrew before he could be sucked into paying a silly price. Now he says he has no more ambitions in the US, even though, as a minority shareholder in Verizon, America remains a somewhat unsatisfactory part of Vodafone's global patchwork of mobile assets.

Nobody would have predicted that mobile telephony would so rapidly have moved from growth market to mature utility. Mr Sarin and his mobile counterparts still talk excitedly about the prospects for 3G, but this is proving to be on a much slower burn than anticipated even a few years ago. Today, the fate of 3G spectrum may be to act as little more than a reservoir of spare capacity for mobile telephony's growing share of the voice market.

Yet capital paybacks are not a phenomenon confined to the big mobile phone companies. They have become the investment mantra of our times right across the industrial waterfront, from oil to banks, pharmaceuticals and even car companies. Free cash flow in both Britain and Europe - that is the amount available for dividends, other forms of capital repayment, capital spending and debt reduction - is at record levels. Rather than investing it, either in capital or acquisitions, companies are handed it back.

In part, this is still the cycle speaking. After the boom of the dot.com years, executives remain uncomfortable with the idea of spending on expansion, even though their profits have recovered sufficiently to allow it. In many cases, shareholders wouldn't let them even if they had a mind to. Who, in any case, would want to invest in sclerotic old Europe right now? America scarcely looks more appetising, with a marked slowdown in US consumption now all but inevitable. So the money goes back to investors to recycle into bonds, private equity and the boom economies of the Far East. It's not what Mr Sarin would have wanted for the pinnacle of his career, but nobody can chose the times in which they live.

French Connection

Divorce is always a painful and messy business, but it came in the nick of time for Stephen Marks, founder of French Connection. Last June, he was able to cite the timing of his divorce settlement as the primary reason for selling nearly £40m of French Connection's shares, thereby avoiding the usual accusation levelled at directors' share sales - that they must know something nasty the rest of the stock market does not. Mr Marks might have gained more satisfaction had he settled with his estranged wife directly in shares, rather than selling them first to pay her off with, for the shares have been in virtual free fall ever since. Now that really would have FCUKed her.

Yesterday came news that like-for-like retail sales in Europe and the UK have fallen by nearly one-fifth since 1 August, which in retailing terms is a total collapse. The shares duly plunged another 17 per cent to 255p, where they are little more than half what Mr Marks was able to sell for at the end of June. Even a casual visitor to one of his stores can see immediately what's gone wrong. The range is expensive, out of date and has failed to catch the latest fashions. For instance, it has been virtually impossible to buy this year's must have, a poncho, at French Connection. What, no ponchos? Even my four-year-old daughter has managed to buy herself a new poncho this autumn.

In the words of Draper's Record, the format has begun to look "tired and tacky", and though Mr Marks dismisses his present troubles as "just a blip", it's hard to share that view. Since the calamity of the autumn/winter range became apparent to him, Mr Marks has fired his retail buying team and brought in a new merchandise director from Next. Yet it's not clear this will reverse the company's fortunes.

Even the FCUK branding, a stroke of marketing genius when it was launched - causing one Old Bailey judge to remark that the logo was "tasteless and obnoxious" - has lost its ability to shock. Now well past its sell by date, it ought by rights to be quietly retired, yet the difficulty Mr Marks has got is that there is nothing to replace it with. With the divorce over, Mr Marks can give the business his undivided attention again and he's confident he will soon have it back on track. In the meantime shareholders might reasonably conclude they've been well and truly, er, shafted.

Big Tobacco

The tobacco industry has been under siege ever since Sir Richard Doll established the link between cigarette smoking and lung cancer more than 50 years ago. Yet it's taken an awfully long time to get from there to yesterday's groundbreaking Government decision to ban smoking at work and in most pubs and, in the intervening years, big tobacco has proved a remarkably resilient lobby, so much so that, financially at least, Britain's three quoted tobacco companies have never been in better health, with share prices close to their all-time highs.

Many years ago, I had the privilege of sitting next to Professor Doll at a lunch party. I kept pretty quiet about my then addiction to the weed, I can tell you, especially as on my other side was a particularly ernest American representative from Ash, who lamented at length and in graphic detail the huge healthcare costs afflicted on the nation by this terrible habit. Quick as a flash, Professor Doll pointed out that in fact this wasn't the case, or rather, that since smoking tended to finish people off before they could retire, become old, and be a burden on the public purse, smoking might actually provide some economic benefit by reducing the number of elderly dependents.

This is the sort of argument that only Professor Doll could have got away with airing. When Philip Morris attempted to use it many years later, the company was widely and rightly condemned, for it is tantamount to advocating involuntary euthanasia for the over-65s.

Tobacco companies have survived and prospered by moving from progressively more inhospitable Western markets into developing economies where fewer questions are asked and a smaller price is put on life. They've also fought a highly successful rearguard action against the constraints policy makers have managed to impose. Litigation once threatened to wipe the industry out, but by hook and by crook tobacco groups have managed to limit the damage.

The tobacco industry was putting as brave a face on yesterday's announcement as it could, and indeed it could have been a whole lot worse. Yet my hunch is that this is the breach in the dam the anti-smoking lobby has been looking for. Other European countries are bound to follow, and though the tax raised from tobacco is still a mighty powerful deterrent against governments going too far, a possibly fatal blow has nonetheless been dealt. If the remote Himalayan kingdom of Bhutan can ban all sales of tobacco, then eventually we can too.

For tobacco, this is the beginning of the end. Fifty years from now, this industry will be largely dead.

jeremy.warner@independent.co.uk

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