Vodafone’s new boss announced the largest series of job cuts in the telecom group’s history, pledging to draw a bold line under its past and streamline a business criticized for its centralized and byzantine decision-making structure.
“Make no mistake, you’ll see the numbers change from here,” Margherita Della Valle, who took over as chief executive of the UK-based company last month, told the Financial Times. She announced on Tuesday that 11,000 jobs would be cut over the next three years, reducing headcount to 89,000.
“What . . . needs to change is the speed and decisiveness of the actions we take due to the position we find ourselves in,” added Italian Della Valle, referring to Vodafone’s poor performance in many of its key markets, including including Germany, Spain and Italy.
Time is of the essence: FTSE 100 Group revenues are 2% lower than in 2018, while adjusted earnings are unchanged. Meanwhile, a gaggle of foreign investors have bought more than a fifth of the company’s shares over the past year, taking advantage of a languid stock price. These include UAE telecoms and investment group e&, which has built a 14.6% stake and sparked speculation about its long-term ambitions.
Despite Della Valle’s bold pledges, some analysts and investors are far from optimistic that there will be a dramatic step change in Vodafone’s performance after successive quarters in which the company’s leadership promised a reversal of trend and yet it has produced a stagnation.
Tim Höttges, managing director of Deutsche Telekomhe told the FT earlier this year that, when he joined the German group in 2000, “Vodafone was the icon.”
But the group “is a different story today,” he said, having struggled to keep up with the market transformation, in part due to a large debt burden and heavy regulation in its core markets.
As part of the new strategy, Vodafone will look to cut roles across the group, which currently employs around 1,500 people at its headquarters in London’s Paddington, as well as in local units across Europe. It will also reduce roles that provide “shared services” such as procurement to regional markets.
Della Valle, 58, underlined an ambition to invest heavily in improving brand perception and customer satisfaction, which has declined in Spain, Germany and Italy since 2017.
But skeptics point to the group’s continued complexity, structural problems in Vodafone’s most important market, Germany, and a lack of evidence that the group can execute deals in markets they believe need consolidation.
They also note that Della Valle has been in charge of the group’s coffers for the past five years as chief financial officer under former CEO Nick Read, and has attended several meetings with investors defending the previous strategy. Read finally stepped down late last year after presiding over a 40% drop in the group’s share price and failing to secure long-discussed deals in some of Vodafone’s key markets.
The group has pledged to find an outsider to take over the role of CFO, which Della Valle technically still fills, according to a person close to the company.
Della Valle reiterated his plan to empower local businesses and pursue deals in markets that do not earn above the cost of capital, including Italy, Spain and the UK. “If a market isn’t earning the right returns, we need to pursue an alternative structure,” she said.
But talks between CK Hutchison and Vodafone merge their businesses in the UK and forming the largest mobile operator in Britain have been underway for almost a year, with a deal yet to materialize.
Russ Mould, chief investment officer at AJ Bell, says the group “is trying to compete on too many fronts, in too many markets with too few resources.”
Della Valle’s path is certainly beset with obstacles, including a growing slate of private investors putting pressure on the group to execute a turnaround. These include the French tycoon Xavier Niel with 2.5%. and the vaunted US businessman Liberty Global with 5%.
“They’re less committed to the group staying whole,” said a top 10 investor who has held shares for years, adding “they will likely put some pressure on the board” to split the group.
Last year, Vodafone rejected an offer from Iliad by Niel to buy the Italian firm for 11 billion euros. Meanwhile, e& has publicly said it will look into increasing its share in the British group between 20 and 25%, earning a seat on the company’s board and fueling speculation it could point to a deal involving Vodafone’s African business, Vodacom.
In Germany, Vodafone’s largest market, the company is saddled with a legacy cable infrastructure in a country rapidly transitioning to full fiber. It has also been hit by a change in cable TV supply regulations for housing associations, which is expected to affect it far more heavily than its rivals.
“There is a high-level question, which is still unanswered, whether having a cable asset makes sense in a world moving to fiber,” said the top 10 investor, adding that “whatever they decide to do will involve a lot of capital expenditures”.
Della Valle noted that his biggest priority in Germany was to “fiberize more and more.”
Vodafone said on Tuesday that its closely monitored adjusted free cash flow was likely to be €3.3 billion for the year to March 2024, lower than the €3.6 billion expected by analysts, largely due to due to rising costs in Germany. But it managed to reduce net borrowing by nearly a fifth, to 34 billion euros, meeting its target of 2.5 times net borrowing to adjusted EBITDA.
A former top 20 investor who has cut his position in the company since last year said the Vodafone story was a “cautionary tale”.
“Hesitating for so long and failing to do anything. . . the company has lost much control over its fate.
However, the investor admitted that the positive signs indicated that the share price may have bottomed out and he welcomed recent moves to add telecommunications expertise to the board, decentralize control and remove weaker units. including the sale of the Hungarian business last year.
The investor added, “Maybe the leopard can change its spots.”
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