Recently appointed Vodafone Group chief executive Margherita Della Valle has announced sweeping changes will take place in the telco to simplify the organisation, cutting out complexity to regain competitiveness after reporting financial results that reflected performance that had “not been good enough”, in particular at European subsidiaries.
For the financial year to 31 March 2023, Vodafone Group’s total revenue increased, albeit by just 0.3% year on year, to €45.7bn, driven by growth in Africa and higher equipment sales. However, this was offset by lower European service revenue and adverse exchange rate movements. Adjusted EBITDAaL dipped by 1.3% on an annual basis to €14.7bn, with revenue growth offset by higher energy costs and what was bluntly called out as “commercial underperformance” in Germany.
Adjusted EBITDAaL margin was 1.4 percentage points lower year on year, at 32.1%, while operating profit increased to €14.3bn. The group made a profit for the period of €12.3bn, almost €10bn more than at the end of the 2022 financial year and largely reflecting a gain on the disposal of Vantage Towers.
Yet despite some nuggets contained within the yearly results, it was clear that the circumstances of the comms industry – and the position of Vodafone within it – required the firm to change. It stated that the European telecommunications sector has among the lowest return on capital employed (ROCE) in Europe, alongside the highest capital investment demands. This has resulted in ROCE being below weighted average cost of capital (WACC) for over a decade, impacting total shareholder returns.
More importantly, the results highlighted that the comparative performance of Vodafone has worsened over time, which the company said was connected to the experience of its customers.
Margherita Della Valle, Vodafone
The firm was confident that where it had the right combination of strong local execution and a rational market structure, it could grow and drive returns. Yet the results accepted that there were material differences between Vodafone’s consumer and business segments, with the latter growing in nearly all European markets.
Della Valle stressed that to consistently deliver, Vodafone had to change. “Our performance has not been good enough. To consistently deliver, Vodafone must change. My priorities are customers, simplicity and growth. We will reallocate resources to deliver the quality service our customers expect and drive further growth from the unique position of Vodafone Business,” she said.
The company stated that its turnaround had to be built from core strengths, but that it needed to overcome some clear challenges. In particular, it conceded that it was more complex than it needed to be, which was limiting local commercial agility.
As a result, the firm is to pivot to rebalance the organisation to maximise the potential of Vodafone Business, which continues to accelerate growth, and which the company said had a unique set of capabilities and a strong position in a large and growing market as organisations digitise. And to win in consumer markets, it said it would refocus on the basics and deliver the simple and predictable experience customers expect.
To execute the change, Vodafone has already undertaken an action plan, which includes “significant” investment reallocated in financial year 2024 towards customer experience and brand, but with 11,000 role reductions planned over three years, with both headquarters and local markets simplification. For growth, the German business would see continued pricing action and a strategic review would be undertaken for Spain.
The company assured that it would change the level of ambition, speed and decisiveness of execution, and would have empowered markets focused on customers with a scaled-up Vodafone Business.