Meet the new boss, same as the old boss? New chief executive Margherita Della Valle has sketched out the latest turnround plan for Vodafone. This is a pragmatic response to competitive weakness. But it is unlikely to deliver anything like the value the UK-listed telecoms group might crystallise by breaking itself up.
The ousting of Della Valle’s predecessor Nick Read in December has changed things remarkably little.
Full-year results were further evidence of how far this mighty business has fallen. It operates in a horribly competitive market. Pricing power resides with suppliers of data, not its distributors. The latter have to keep investing in capacity.
Vodafone has an accompanying tendency to use its foot for target practice. It has stumbled in Spain and — in spectacular fashion — in Germany, its largest market, where it is losing broadband customers.
Revenues have been broadly flat for at least a decade. Returns lurk below or around cost of capital in four key markets. Vodafone’s free cash flow does not cover capex and shareholder returns, although disposals are bringing leverage down. The shares have fallen more than half over the past five years.
Remedies are scarce. Della Valle vows to improve Vodafone’s performance by slimming down headquarters and devolving power and accountability to operating subsidiaries. The company is cutting more than 10 per cent of its workforce. It will reinvest savings in a better customer experience, supposedly. It plans to chase higher-margin business clients, who value its brand.
These incremental improvements may not be enough to stem the tide of customer outflows in complex markets. In Germany, for instance, Vodafone has to recontract its broadband client base. It is also raising prices, which may increase churn.
An organic turnround seems a distant hope. Remaining investors, long kept on hold, need little excuse to disconnect.
Ex-finance boss Della Valle deserves credit for putting Spanish assets on the block. She is open to other changes in the group’s structure. She should pursue this line of reasoning.
Vodafone’s market capitalisation is £23bn. That is a discount of almost 30 per cent to a sum of the parts valuation from Citigroup.
Della Valle’s tactics appear canny: aim to grind out results that exceed lowered expectations. But that does not amount to a strategy to replace Vodafone’s failed push for scale advantages. Investor pressure for a break-up will persist and intensify.
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