Vodafone Group Plc’s new chief said her plan to turn around the telecommunications carrier — announcing its biggest-ever job cuts and streamlining operations — isn’t going to pay off immediately.
(Bloomberg) — Vodafone Group Plc’s new chief said her plan to turn around the telecommunications carrier — announcing its biggest-ever job cuts and streamlining operations — isn’t going to pay off immediately.
Chief Executive Officer Margherita Della Valle forecast flat profit and a roughly 30% decline in free cash flow for the fiscal year in a statement on Tuesday, missing analysts’ estimates and helping send shares down to their lowest level since 1997. That’s despite her vows to cut 11,000 full-time jobs — about 12% of the company’s overall workforce — over the next three years, improve performance in Germany and start a strategic review of its Spanish operations.
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 trouble selling assets to trim down its sprawling global operations.
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“This will not be a quick fix,” Della Valle said. “The steps we have taken in the last few years have probably been too incremental. We need to be much deeper and faster.”
Shares fell 7.4% in London trading on Tuesday to 83.33 pence, their lowest level since 1997.
Part of Vodafone’s problem is a malaise that’s affecting the whole sector. Customers are using more data and demanding faster speeds, requiring billions in spending to upgrade networks. Meanwhile competition holds down prices in Europe, where four large carriers will often compete for populations that are sometimes less than 1/10 of the size of the US.
But Vodafone also has self-inflicted wounds. The company has had a series of missteps in Germany, which included dropping the ball on a new telecom law in the country, according to Numis analyst John Karidis, who wrote in a note Tuesday that Vodafone is becoming “un-investable.” Vodafone’s also failed to pull off deals, losing out to rivals. Last year, competitors Orange SA and Masmovil Ibercom SA struck a deal to combine their Spanish operations that, if successful, will leave Vodafone as a distant third place in the market.
Adjusted free cash flow will drop to €3.3 billion ($3.6 billion) in the fiscal year ending in March, the company said. Much of that decline is due to a change in German law that affects how Vodafone bills customers, a spokesman said. A company-compiled consensus of analyst estimates had put the figure at €3.6 billion.
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Earnings before interest, taxes, depreciation and amortization after leases are expected to be €13.3 billion this year, which Vodafone described as “broadly flat” after factoring in asset sales.
“Our performance has not been good enough. To consistently deliver, Vodafone must change,” Della Valle said in the statement. “My priorities are customers, simplicity and growth. We will simplify our organization, cutting out complexity to regain our competitiveness.”
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 additional context starting in the seventh paragraph)
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