Margherita Della Valle’s first one and a half year tenure as CEO of Vodafone has witnessed rather ominous developments as far as the stock market is concerned. The firm, listed in London, has seen its share prices plummet almost 18% during this period, adding to a 10-year decline approximating to 75%. Eircell was bought from Eircom (currently known as Eir) in 2001, securing Vodafone hundreds of thousands of Irish investors.
The wider European stock market has progressed at double the pace of the European telecoms sector, which only managed to enhance by almost 9% in the past 18 months. Telecommunication firms in Europe have struggled with decreasing average user revenues over the past ten years. This is due to competition from platforms such as WhatsApp and Skype, which enforced hefty investments into fourth and fifth-generation mobile spectra and fibre networks in efforts to retain clientele.
According to recent statistics from the European Telecommunications Network Operators’ Association, as of 2022, mobile average revenue per user in Europe was €15, approximately one-third of the US rate. A similar disparity is seen in fixed broadband, where European and US rates stood at €23 and €59, respectively.
In addition to these challenges, Vodafone has expended significant management resources over the past dozen or so years restructuring its formerly intricate and extensive global operations. Previous CEOs, Vittorio Calao and Nick Read, executed sales of minority stakes in phone businesses from China, Japan and the US, and devalued Vodafone’s minority-held troubled Indian operations to zero.
Della Valle inherited unfinished tasks from her predecessors, but has made noticeable strides in addressing underperformance in the firm’s vital markets nearer to home. Last October, an agreement to sell the firm’s operations in Spain – a highly competitive market with major operators – to Zegona Communications, as another UK-based group, was reached. The transaction, valued at €5 billion, was executed earlier this month.
Vodafone’s CEO, in a quest for a turnaround, is taking significant measures. A notable move was the sale of Vodafone’s Italian division to Swisscom for a whopping €8 billion, which occurred in March. Meanwhile in the UK, a planned £15 billion merger between Vodafone UK and Three UK is currently undergoing an intensive review by competition authorities, a process stemming from concerns over increased customer prices due to the combination of two of the mobile network giants.
Furthermore, Vodafone managed to raise $1.82 billion just last week, offloading over 80% of its prior 21.5% stake in Indus Towers, an Indian telecom infrastructure enterprise.
Della Valle, a seasoned executive with over thirty years under her belt at Vodafone, is implementing further significant changes. Shortly after becoming CEO, she announced that she would be eliminating more than 10% of the company’s workforce, amounting to roughly 11,000 jobs within a span of three years.
In terms of financials, Vodafone saw a 6.3% growth in organic service revenue for the year ending March, discounting the influence of disposals, and organic adjusted Ebitda recorded a minor increase of 2.2%.
Analysts’ confidence in Vodafone also seems to be stabling, as JP Morgan’s Akhil Dattani globally points out, the downward spiral of analysts reducing their profit expectations appears to have been halted. Moreover, Deutsche Numis analysts recently assigned a buy rating to the company’s shares, attributing the upward shift to the calculated steps undertaken to rejuvenate the company. This is a significant shift from a year ago when analyst John Karidis advised that Vodafone was becoming increasingly unviable for investment.
However, the telecom giant is not without challenges, with Germany posing significant obstacles due to its legacy; a €100 billion+ acquisition of Mannesmann and a €19 billion investment in cable networks of Liberty Global across Germany and Eastern Europe.
Due to a legislative adjustment coming into force next week, the company stands to lose over four million clientele in Germany, which corresponds to a potential annual revenue loss of €400 million. This new regulation will put a stop to a common practice previously allowing owners of apartment blocks to enter into contracts with cable TV providers and incorporate these fees into rental invoices.
Della Valle, who served as the CFO for five years prior to taking the reins, recently revealed plans to allocate €2 billion from the proceeds of asset sales to a share repurchase scheme. An additional €2 billion is to be ear-marked for share buybacks following the completion of the sale in Italy.
That said, Della Valle also gave confirmation next year’s annual dividend of Vodafone would be reduced by half, creating a fresh basis for a leaner organisation, which she eagerly deems to be “right-sized”. This reduction has been long anticipated by market spectators.
There’s no denying that Della Valle has surprised her sceptics with the speed and decisiveness of her actions so far. Nonetheless, doubts remain about her ability to drive significant growth in the markets where Vodafone continues to compete.
Shareholders of Vodafone have been frequently disappointed by false promises in the company’s history.