Vodafone CEO Margherita Della Valle acknowledged that the distressed telecommunications giant 'needs to change' by announcing plans to cut 11,000 jobs and improve customer service.
The telecom company, which employs about 90,000 people worldwide, declined to say how many jobs will be lost in the UK, but massive job cuts will hit the UK.
Della Valle announced a restructuring plan and frankly admitted: «Our performance was not good enough.»
The company reported a 1.3% drop in annual profit to 14.7 billion euros, in which it blamed the high electricity costs and the still low figures in Germany.
Revenue stalled at €45.7bn (£39.8bn), with growth in Africa and equipment sales offset by lower services revenue in Europe.
>Weak results and promise of recovery not impressed investors: shares fell 9% to a level not seen since 1997.
Vodafone — back in the 90s
This is far from the company's peak in 2000, when its share price was at an all-time high after a series of deals in the 1990s. In the same year, Vodafone also sponsored the shirts of Premier League winners Manchester United.
However, Vodafone in 2023 looks to observers like a bloated organization that is struggling to understand what its purpose is. Critics say he's trying to do too much in too many countries — a jack-of-all-trades, but a master of none.
Karen Egan, head of mobile at Enders Analysis, says: “There's a real question mark about where Vodafone is adding value here or decreasing value? The very essence of why Vodafone exists must be questioned now.”
Della Valle, who was confirmed as permanent chief executive earlier this month after five months as interim chief, is facing an uphill battle to revive the ailing telecommunications giant after years of decline.
Vodafone announced plans to cut 11,000 jobs as new chief executive Margherita Della Valle said the distressed telecommunications giant «needs to change.» Photo: Vodafone
Once one of the world's largest telecommunications companies, Vodafone has struggled to stem a slump that has seen its share price drop nearly 60 percent over the past five years.
Many of Vodafone's current problems can be traced back to the disastrous €18.4 billion acquisition of Liberty Global's cable network in Germany. The 2019 deal continues to weigh on bottom line with Vodafone reporting a decline in service revenue in Germany last year and further losses from TV and broadband customers.
Problems escalated in December when the CEO Director Nick Reid was suddenly fired under pressure from active investors.
Della Valle, who has been with the company for nearly three decades and most recently served as chief financial officer, was named interim CEO and was eventually promoted to the top job this month.
But that only came after a lengthy a search process in which Vodafone contacted industry heavyweights, including former EE chief executives Olaf Swanty and Mark Allera, who are being lured by many to take over at BT.
Internal regional managers, who were initially excluded, were asked to apply at a later stage in the process, a move that will further fuel rumors that Vodafone is struggling to attract a candidate.
A lot of experience, according to insiders Della Valle at the company, as well as her European outlook, impressed the board of directors and made her the perfect fit for the position. She is also respected in the industry.
However, the choice of an internal candidate has caused bewilderment at a time when fundamental reforms are needed. Della Valle's claim that the recent changes were «too gradual» is of little comfort given that she was one of the company's most senior executives.
«People were burned,» says Egan. “There were many promises to change the situation, but they were never realized.”
Shareholders and analysts are also concerned about the sustainability of Vodafone's dividend. The company forecasts free cash flow of just €3.3bn for the upcoming fiscal year, down from €4.8bn in 2023 and below expectations. With a €2.5 billion dividend and additional restructuring costs, there is little financial headroom left.
Along with massive layoffs, the new CEO wants to refocus on Vodafone's business unit, as well as focus more on customer service.
Vodafone abruptly announced the departure of Nick Reed in December after its share price fell nearly 50% Photo: Louis Jean/AFP
Philip Kars, chief analyst at Megabuyte, says the business unit's priority «makes sense» and that job cuts help streamline an «incredibly bloated» organization.
Other analysts, however, say Della Valle's promises are just it's just manipulation and more fundamental reforms are needed.
«The worry here is that this looks a lot like another Nick Reed promise,» says Egan. «It should sound like there's more conviction and urgency behind it.»
Luigi Bucci, an analyst at Moody's, agrees that «bigger changes are needed.»
The most obvious solution is to focus only on key areas and create significant scale. The key to this is moving away from businesses and divisions that are not considered critical.
Reed got his start by selling Vodafone's stake in its Vantage Towers mobile tower business, and in January the group sold its Hungary operations for £1.70. billion euros.
Della Valle announced a strategic review of the company. operations in Spain, which could lead to a sale, while other markets such as Italy are ripe for consolidation.
She said: “My priorities are customers, simplicity and growth. We will simplify our organization by reducing complexity to restore our competitiveness.”
One industry source describes the breakup of Vodafone as «an uncertainty», while Kars says the group's attempts to downsize are «a reflection of the fact that a big cross-border telco doesn't really give you much synergy.» .
Instead, the Newbury-based company is doubling down on its domestic UK market.
However, Vodafone's biggest merger, a £15bn merger with Three to create the country's largest mobile operator, has yet to take place. Negotiations were put on hold due to leadership changes, price disagreements and national security concerns.
What is the Emirates Tele Communications Group?
In addition, Della Valle could face another stumbling block in the form of e&, the state telecommunications group of the United Arab Emirates, which acquired a 14.6% stake in Vodafone and took a seat on the board of directors.
e& that his investment is based on Vodafone's «established position and worldwide reputation» sparked speculation that the company might oppose a breakup.
«Keeping the whole group together suits them,» says Egan. “I think the possibility that any of the individual markets will be sold to private capital will not please e& but it may be in the shareholders' best interest.»
Due to performance issues and a new shareholder on the tail, Della Valle must quickly show tangible results from her new plan.
As Kars says: » It is her responsibility to prove that the strategy will work.”
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