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Vodafone’s various chief executives struggle to convince investors on firm’s turnaround

Margherita Della Valle wielding axe with several deals in the offing and a mission to cut 11,000 jobs over three years

Vodafone Group chief executive Margherita Della Valle is a company veteran of 30 years. Photograph: Bloomberg

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Joe Brennan
Sat Jun 29 2024 - 06:00

The stock market has offered a pretty lugubrious take on Italian native Margherita Della Valle’s first 18 months as chief executive of Vodafone.

Shares in the London-listed company, which continues to have hundreds of thousands of Irish investors from the 2001 purchase of Eircell from Eircom (now Eir), have fallen almost 18 per cent over the period. It brings their slump over the past decade to about 75 per cent.

By contrast, the European telecoms sector has managed to advance almost 9 per cent over the past year-and-a-half — albeit at half the pace of the wider European stock market.

The telecoms industry in Europe has seen average revenues per user (Arpu) drop in the past decade, as it lost ground to over-the-top platforms like WhatsApp and Skype even as they were forced to invest — typically by taking on debt — in fourth and fifth-generation mobile spectrum and fibre networks to maintain subscribers.

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Mobile Arpu in Europe in 2022 stood at €15, about a third of the rate in the US, according to latest figures from the European Telecommunications Network Operators’ Association. This difference is also evident in fixed broadband, where European Arpu stood at €23, compared to €59 in the US.

Vodafone’s problems have been compounded by the fact the company has had to devote huge management time over the past dozen or so years trying to put some shape on what once was a sprawling and complex global business.

The two previous chief executives, Vittorio Calao and Nick Read, oversaw sales of minority stakes in phone companies from Japan and China to the US and the writing down of the value of Vodafone’s minority-held troubled Indian operations to zero.

The job was far from done by the time Della Valle took over. But she has made impressive progress tackling some of what were traditionally its most important — but underperforming — markets closer to home.

Last October, she agreed to sell the company’s operations in Spain — a fiercely competitive market with four big operators — to Zegona Communications, a fellow UK-based group. The €5 billion deal was completed earlier this month.

In March, she signed a deal to sell Vodafone’s Italian business — also in a market of four large telecom players — to Swisscom for €8 billion.

A proposed £15 billion (€17.7 billion) merger between Vodafone UK and Three UK — agreed last July after months of talks that started under Read’s watch — is going through an in-depth assessment by the UK’s competition watchdog. The authority said in March it feared the deal to combine two of the four mobile network groups in that market could lead to higher prices for customers.

Meanwhile, Vodafone last week raised $1.82 billion (€1.71 billion), selling more than 80 per cent of its previous 21.5 per cent stake in Indian mobile masts infrastructure company Indus Towers.

Della Valle is wielding the axe elsewhere, too. The company veteran of three decades announced shortly after taking charge that she would cut 11,000 jobs or more than a tenth of Vodafone’s then workforce over three years.

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Vodafone reported last month that organic service revenues for the year through March grew by 6.3 per cent, excluding the impact of disposals. Organic adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) edged up 2.2 per cent.

Most importantly, according to JP Morgan analyst Akhil Dattani, the chief executive has stemmed — “or at least paused” — what had been a multiyear cycle where analysts had continually downgraded their earnings forecasts.

Deutsche Numis analysts decided last week to slap a buy rating on the stock, hailing the “deliberate” actions that are being taken to turn around the business. Only a year ago, one of those analysts, John Karidis, was advising clients that Vodafone was “becoming uninvestable”.

Vodafone faces headwinds — no more so than in Germany, its largest market (a legacy of its €100 billion-plus takeover of telecoms giant Mannesmann in Düsseldorf and €19 billion purchase five years ago of the German and eastern European cable networks of US billionaire John Malone’s Liberty Global).

The company is set to lose more than four million customers in Germany — equating to €400 million of annual revenues — as a result of a law change that takes effect next week. It will end a practice where owners of blocks of apartments could sign deals with cable TV providers and bundle the charge with rental bills.

Della Valle, who was chief financial officer for five years before taking overall charge, unveiled plans last month to spend €2 billion on a share buyback programme with some of the proceeds from asset sales. A further €2 billion will be spent on stock repurchases after the Italian sale goes through.

However, she also confirmed she would be halving Vodafone’s annual dividend next year, setting a new base for what the chief executive calls a slimmer, “right-sized” organisation. The cut had been widely expected by the market for some time.

Della Valle has confounded critics with the pace of actions she has taken to date. But they continue to question whether she will be able to secure meaningful growth in the markets in which Vodafone remains.

Shareholders in Vodafone have been burned by false dawns all too often in the past.

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