New Vodafone boss takes aim at costs with 11,000 global job cuts

New Vodafone (VOD.L) boss Margherita Della Valle said she would cut 11,000 jobs globally over three years to help the telecoms group regain its competitive edge after it warned that a poor performance in its biggest market Germany would hit cash flow.

Shares in Vodafone, which has underperformed rivals in its major European markets, fell to their lowest level since 2002, and were trading down 9% by mid-afternoon.

Della Valle was tasked with turning Vodafone around when she permanently took on the top job from the role of CFO last month. Three major shareholders could all benefit from a break up of the group.

“To consistently deliver, Vodafone must change,” she said. “My priorities are customers, simplicity and growth.”

The additional cuts announced on Tuesday will be spread across its European markets, as well as more reductions in the centre, she told reporters.

Germany, Vodafone’s biggest market, was underperforming, Della Valle said, while “structural change”, meaning a full or partial sale, was an option in Spain.

Tuesday’s share price fall was probably due to its forecast of 3.3 billion euros ($3.6 billion) of cash flow this financial year, down from 4.8 billion euros in the year to end-March 2023, she said. Analysts had expected 3.6 billion euros.

The CEO put the lower forecast down to the timing of payments for cable TV in Germany due to a change in the law.

The dividend remained well covered, the investor told Reuters, but there was perhaps greater pressure to realise some of the potential steps to unlock the group’s value.

Vodafone’s dividend was a matter for the board, Della Valle said, but pointed to a “significant” cut in debt and said the group was comfortable with its leverage. The yield exceeded 10% on Tuesday.

“The new CEO has decided to maintain its dividend (a missed opportunity in our view and a concern the company remains unwilling to take necessary bolder action),” analysts at JP Morgan Cazenove said.

LAGGING RIVALS

Vodafone reported a 1.3% decline in group core earnings to 14.7 billion euros for the year, missing its own guidance.

Della Valle said the European telecoms market had long delivered a poor return on the capital invested in networks, but Vodafone’s relative performance had worsened over time.

Activist investors and rivals have also described the British group as unwieldy and slow to respond to market changes.

Emirati telecoms firm Etisalat (EAND.AD) has built up a 14.6% stake and French telecoms billionaire Xavier Niel, who competes with it in Italy, and Liberty Global, its partner in the Netherlands are also investors.

Analysts have said all three are positioned for any sale of Vodafone’s operations.

Setting out her roadmap, Della Valle said she would maximise the potential of business customers, a long-standing Vodafone strength, while focusing on the basics, such as customer service, for consumers.

Della Valle’s predecessor Nick Read, who stepped down in December amid investor frustration, had said consolidation was needed in major markets like Britain, where Vodafone has been in talks with rival Hutchison’s Three UK for at least nine months.

Vodafone said on Tuesday there could be no certainty that any transaction would ultimately be agreed.

“It will take as long as it takes to get a good deal,” Della Valle told reporters.