Vodafone Group Plc shares fell after the telecom giant’s new Chief Executive Officer Margherita Della Valle set out muted forward guidance alongside a plan to revive growth, slashing jobs and simplifying the company’s corporate structure.
(Bloomberg) — Vodafone Group Plc shares fell after the telecom giant’s new Chief Executive Officer Margherita Della Valle set out muted forward guidance alongside a plan to revive growth, slashing jobs and simplifying the company’s corporate structure.
Vodafone will cut about 11,000 roles over the next three years across the roughly 90,000 people it employs, work to turn around its biggest division in Germany, and start a “strategic review” of its Spanish unit, it said in a statement Tuesday. Last month, Bloomberg reported the Newbury, England-based company had attracted takeover interest for its operations in Spain.
Shares fell 4% to 86.39 pence at 9:52 a.m. in London, with analysts at Morgan Stanley citing the firm’s tepid outlook and lower-than-expected cash flow guidance as negatives. Vodafone gave no forward-looking commentary on its dividend.
Della Valle, a 29-year Vodafone veteran who previously served as chief financial officer and interim CEO before she was made permanent in the top role last month, has been charged with turning around the company, which has suffered from a lagging share price and difficulty consolidating its sprawling global operations.
Some €250 million ($272 million) in cost savings from the job cuts will be reinvested in improving Vodafone’s services, brand and customer experience in the coming year, Della Valle told reporters on a call Tuesday. She also said she wants to reallocate resources to the growing Vodafone Business unit.
“Our performance has not been good enough. To consistently deliver, Vodafone must change,” she said in the statement. “My priorities are customers, simplicity and growth. We will simplify our organization, cutting out complexity to regain our competitiveness.”
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Asked why Vodafone hadn’t taken such action sooner, after she’d sat on the board and executive committee for five years, Della Valle said “you can argue that the steps that we have taken in the last few years have probably been too incremental. We need to be much deeper and faster.”
“This will not be a quick fix,” she added in a presentation.
Cash Hit
Adjusted free cash flow will drop by about 31% to €3.3 billion in the fiscal year ending in March, following divestments but also taking a hit due to “expected working capital movements,” the company said. Much of that decline is due to a change in German law that means Vodafone will have to collect money from tenants instead of landlords representing many customers, a spokesman said. A company-compiled consensus of analyst estimates had put the figure at €3.6 billion.
The new cash flow position is a base from which the company can grow, Della Valle said in the presentation.
Earnings before interest, taxes, depreciation and amortization after leases are expected to be €13.3 billion in the year ending in March, which Vodafone described as “broadly flat” once factoring in the the partial sale of mobile mast unit Vantage Towers and divestment of its business in Hungary. Those sales meant the group paid off more than €8 billion in debt, taking the remaining total to €33.4 billion, putting its debt-to-earnings ratio at 2.5 times.
Vodafone’s new CEO must also grapple with a suite of new shareholders from the telecom industry, some of whom are becoming more vocal about their desire to influence the direction of the company. Emirates Telecommunications Group Co., or e&, has been steadily building a stake and is now the company’s largest shareholder. The United Arab Emirates-backed company’s CEO Hatem Dowidar, a former Vodafone executive, will join the board as a non-executive director, Vodafone said last week.
A long-awaited merger with British rival Three UK, owned by CK Hutchison Holdings Ltd., was not announced, seven months after the company first confirmed discussions.
“We are progressing — and I need to say up front, it’ll take as long as it takes to get a good deal,” Della Valle told reporters.
–With assistance from Henry Ren.
(Updates with details and CEO quotes throughout)
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