Vodafone, the global telecommunications giant, unveiled a comprehensive turnaround plan today, accompanied by significant job cuts of at least 11,000 positions. Margherita Della Valle, the newly appointed CEO, aims to streamline operations and enhance profitability amidst challenging market conditions.
Della Valle, who assumed the permanent CEO role last month, acknowledged the need for drastic change in Vodafone’s performance. In her first set of results, she emphasized the importance of prioritizing customers, simplicity, and growth. The telecom company plans to simplify its organization, eliminating complexity to regain competitiveness and deliver the high-quality service expected by its customers.
While the exact number of job cuts in the UK remains uncertain, Della Valle highlighted three key areas affected by the restructuring: the company’s global headquarters in Paddington, Germany, and Spain. By reducing oversight layers in their headquarters and discontinuing shared operations with unproven business cases, Vodafone aims to achieve a leaner and more efficient structure.
The company’s full-year earnings for 2022 revealed a decline of 1.3% to 14.7 billion euros, falling below the initially projected range of 15-15.5 billion euros. Factors contributing to this decrease included higher energy costs and underperformance in Germany. Vodafone anticipates further earnings decline next year, with estimates set at 13.3 billion euros.
The announcement impacted Vodafone’s share price, resulting in a 4% decline to 86p at the market opening. Over the past year, the company’s shares have plummeted by more than 28%. Della Valle attributed this decline to a recent law change affecting the company’s TV contracts in Germany. The prohibition of bulk TV contracting necessitates individual re-contracting efforts with approximately 8.5 million German TV customers, responsible for around €800 million in revenues.
Regarding Germany’s performance, Della Valle candidly admitted its unacceptability and attributed it to previous quarters’ broadband losses. Vodafone has responded with a new range of products and promotions aimed at revitalizing its presence in the German market.
The job cuts and turnaround measures represent significant challenges for the new CEO, who is already faced with a demanding agenda. Recent developments include the addition of the CEO of e&, a United Arab Emirates government-owned telecoms business, to Vodafone’s board through a new partnership. Additionally, the company is reportedly on the verge of finalizing a deal to acquire telecommunications rival Three.
As discussions for the Three merger continue, Della Valle expressed confidence in reaching a favorable agreement but emphasized the importance of taking the necessary time to secure a beneficial deal.
Vodafone’s strategic review will also focus on Spain, potentially resulting in a sale. The company aims to simplify its sprawling operations in Europe, address underperformance, and drive growth in its business division.
The new CEO’s ultimate objective is to reverse the downward trend in Vodafone’s share price, which has witnessed a decline of over 50% in the past five years. The recent underperformance in free cash flow, which reached €3.3 billion due to timing issues related to cable TV payments in Germany, contributed to a further 3% drop in share value.
Despite the challenges, Vodafone reported a decrease in net debt from €41.6 billion to €33.4 billion, thanks to disposals and other measures.
Vodafone’s strategic partnership with e& and the potential consolidation with Three demonstrates the company’s determination to regain momentum and solidify its position in the telecommunications industry. Della Valle’s leadership will be crucial in executing the ambitious turnaround plan, with a strong focus on customer-centricity, operational efficiency, and sustainable growth.