New CEO’s roadmap for recovery includes eradicating 11,000 jobs over the next three years
Margherita Della Valle, Vodafone Group’s new CEO, formerly Group, said “our performance has not been good enough” of its annual earnings for the year that concluded at the end of March.
I doubt she’d find anyone who’d disagree and failed to meet analysts’ expectations. As Will Rhind, Founder and CEO of GraniteShares, put it, “Vodafone’s shares have underperformed the market and are down more than 58% over the past five years over concerns about slowing revenue across Europe.”
Revenues grew 0.3% to €45.7 billion over the year, but adjusted earnings before interest, tax, depreciation and amortisation fell 1.3% to €14.9 billion. The company’s guidance had been between €15 billion and €15.2 billion.
Its adjusted free cash flow was €3.3 billion, again less than analysts’ expectations of €3.8 billion which Vodafone blamed regulatory changes affecting cablecos in Germany.
Grumbling about changes to regulation in multi-tenanted blocks in Germany, Vodafone’s biggest market in Europe, it is old news and it’s not as though it was a surprise. Having paid a massive whack for Liberty Global’s cable infrastructure in Germany as an instant way of owning a fast broadband network has not gone to plan. Over the last financial year, Vodafone Deutschland suffered a 1.6% drop in service revenue growth, which translates to -6.1% adjusted EBITDAaL growth.
So what now? Well sack lot of people is the default remedy and in this case that means 11,000 will lose their jobs at Vodafone’s UK headquarters and in local markets. The Group employs about 104,000.
Vodafone is under huge pressure to consolidate and simplify its sprawling empire, but the roadmap set out in today’s earnings presentation doesn’t appear to address that. For example, it Orange is in the approvals process to acquire MasMovil in Spain (where Vodafone is struggling) after months of speculation that Vodafone would acquire MasMovil. There is speculation other buyers are interested in Vodafone’s Spanish property.
It rebuffed an €11 billion offer for its business in Italy from the French Iliad Group last year, although its billionaire founder, Xavier Niel, is still circling, and the proposed merger between Vodafone UK and Three UK is mired in apparently endless negotiations about terms and conditions, and there are concerns about the fact Three UK is owned by a Hong Kong-based (Chinese) conglomerate.
In the meantime, what was Etisalat, the UAE-headquartered operator group, now inexplicably renamed e&, has become the single biggest shareholder with a 14.6% stake in Vodafone (and regulatory approval to raise it to 15%) and a seat on the board. Niel too built a substantial stake in Vodafone (2.5%) and so has Liberty Global (5%).
Below is the roadmap set out by Della Valle to revive Vodafone’s fortunes with light editing:
“Today, we set out a new roadmap for Vodafone, following a strategic review conducted over the last five months.
1. Vodafone must change
The circumstances of our industry and the position of Vodafone within it, require us to change.
- The European telecommunication sector has among the lowest return on capital employed (ROCE) in Europe, alongside the highest capital investment demands. This has resulted in ROCE being below weighted average cost of capital (WACC) for over a decade, impacting total shareholder returns.
- The comparative performance of Vodafone has worsened over time, which is connected to the experience of our customers.
- Our market position and performance varies by geography and segment. Where we have the right combination of strong local execution and a rational market structure, we can grow and drive returns. There are also material differences between our Consumer and Business segments, with Business growing in nearly all European markets.
- Our turnaround must be built from our strengths, but we need to overcome some clear challenges. We are more complex than we need to be, which limits our local commercial agility.
2. Strategic shifts
Our target is to be a best-in-class telco in Europe and Africa, and become Europe’s leading platform for Business. To achieve this, we must change in four essential areas.
- We will rebalance our organisation to maximise the potential of Vodafone Business, which continues to accelerate growth, has a unique set of capabilities and has a strong position in a large and growing market as organisations digitise.
- To win in consumer markets, we will refocus on the basics and deliver the simple and predictable experience our customers expect.
- We will be a leaner and simpler organisation, to increase our commercial agility and free up resources.
- We will focus our resources on a portfolio of products and geographies that is right-sized for growth and returns over time.
3. Our action plan
To execute the change in these four areas, we have an action plan already underway, focused around three priorities: Customers, Simplicity and Growth. Early examples of this action plan include:
- Customers – significant investment reallocated in FY24 towards customer experience and brand
- Simplicity – 11,000 role reductions planned over three years, with both HQ and local markets simplification
- Growth – Germany turnaround plan, continued pricing action and strategic review in Spain
We will change the level of ambition, speed and decisiveness of execution. We will have empowered markets focused on customers, scale up Vodafone Business and take out complexity to simplify how we operate.”
Vodafone’s share price fell 3% in early trading. Rhind of GraniteShares claims, “sophisticated investors see opportunities to benefit from positive share price movements and analysts are expecting news on M&A moves including a possible merger of Vodafone’s UK business with Three UK. Vodafone also has one of the strongest dividend yields in the FTSE 100.”
You have to wonder about the whole group being a takeover target.