Phones 4u hit as Vodafone withdraws contract renewal
THE financial clout of Staffordshire-based mobile phone retailer, Phones 4u, has taken a major dent after it revealed network operator Vodafone would not be renewing its contract agreement.
£430m of secured notes lost a lot of appeal to investors as the new broke, leaving the retailer desperately trying to conclude a new agreement as quickly as possible.
In a statement, Phones 4u (P4U) said it had been holding talks with Vodafone for some time regarding the renewal of its network agreement in the UK.
“It has now become apparent that this agreement will not be renewed, and will therefore terminate in February 2015. P4U is both surprised and disappointed with this decision,” it said.
During the 12 months to July 31, 2014, P4U said it had secured around 430,000 post pay connections to Vodafone, spread between new contracts, upgrades and SIM only deals. This represented 27% of P4U’s total post-pay connections.
It also concluded 125,000 pre-pay connections for Vodafone, representing 16% of P4U’s total pre-pay connections.
Combined, this represented £212m of turnover and £18.5m EBITDA (calculated as the gross profit derived from those connections – excluding insurance, which has an estimated value of £3m per annum.
P4U, majority-owned by private equity firm BC Partners, said it was holding talks with other network operators but warned there could be no certainty an agreement would be reached.
“Through these and other discussions, the directors believe that it may be possible to replace the volume of connections it procured for Vodafone with connections for the existing networks offered by P4U (EE, Orange, T-Mobile and Virgin Mobile), other network operators, third party mobile virtual network operators (MVNO) and its own MVNO (Life Mobile),” it added in its statement.
Insiders said there had been hints of a struggle between the two companies for some time, a situation which worsened following the merger earlier this year between retail rivals Carphone Warehouse and Dixons.
It was felt the merger instantly undermined P4U’s position as a major player in the market.
P4U’s only remaining network agreements are now with EE – which comprises T-Mobile and Orange – and Virgin Mobile. EE is the UK’s biggest mobile operator, which allows it to be choosey who it does business with. Earlier this year it announced it would be reviewing sales through third-party retailers.
P4U, founded by leading entrepreneur turned philanthropist John Caudwell, has said it will issue an update on the situation “as soon as the directors are in a position to do so”.
