Interactive Investor

ii view: Vodafone to cut jobs as part of new efficiency drive

16th May 2023 11:29

by Keith Bowman from interactive investor

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This telecoms major now offers a dividend yield of over 8% and a UAE telecoms group retains a major share stake. We assess prospects. 

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Full-year results to 31 March

  • Total revenue up 0.3% to €45.7 billion
  • Service revenue up 2.2% to €37.97 billion 
  • Adjusted profit down 3.6% to €14.66 billion
  • Final dividend of 4.5 euro cents per share
  • Total dividend for the year unchanged at 9 euro cents per share
  • Net debt down 19% to €33.4 billion

Chief executive Margherita Della Valle said:   

"Today I am announcing my plans for Vodafone. Our performance has not been good enough. To consistently deliver, Vodafone must change."

ii round-up:

Mobile phone network provider Vodafone Group (LSE:VOD) today detailed plans to cut 11,000 jobs as it posted a decline in profits and flagged its expectation for profit over the year ahead to remain flat.

Adjusted profit for the year to the end of March fell marginally shy of City forecasts, falling 1.3% to €14.66 billion, hindered by higher energy costs and a 1.6% retreat in service revenues in its biggest market Germany. 

Shares in the FTSE 100 company fell by more than 3% having come into this latest news down by a quarter over the last year. Rival BT Group (LSE:BT.A) has fallen by 15% over that time while the FTSE 100 index itself is up by 4%. 

New chief executive Margherita Della Valle now plans to make Vodafone a leaner and simpler organisation, increasing its commercial agility and focusing its investment on enhancing the customer experience and brand. 

Total group revenues rose 0.3% year-over-year to €45.7 billion, helped by growth in Africa and higher equipment sales, although countered by lower European service revenues and adverse exchange rate moves. 

A final dividend of 4.5 euro cents per share leaves the total dividend for the year unchanged at 9 euro cents per share, or 7.82p at today's prices. 

A first-quarter trading update is scheduled for 27 July. 

ii view:

Vodafone has almost 65 million European contracted mobile phone network customers, along with more than 280 million African mobile phone and data users. Its 5G data service is now available in 332 European cities, up from 294 last year. Alongside its mobile network, it also has 24.7 million European fixed line broadband customers. Germany generates its biggest slug of adjusted profits at 36%, followed by Italy at 10% and the UK at 9%. 

For investors, elevated costs such as energy which are passed on to customers via higher charges, come at a tough time given a highly competitive environment and a cost-of-living crisis for consumers generally. A series of transformation plans have previously been launched, net debt of €33.4 billion (£29 billion), although down 19%, compares to a stock market value nearer to £23 billion, while adjusted earnings of 11.45 euro cents only just cover a full-year dividend payment of 9 euro cents per share. 

On the upside, intent by the new chief executive to cut costs and improve efficiency has been underlined by plans to cut 11,000 jobs over three years. Adjusted profit at its African business Vodacom rose 1.6% to €2.16 billion year-over-year, there's diversity of both business type and geography, while UAE telecommunications company e& continues to hold a more than 10% shareholding in Vodafone, raising speculative hopes and potentially applying further pressure on management for change. 

For now, and while room for caution persists, action to turn the business around is welcome, and a historic and forecast dividend yield nudging 9% arguably rewards existing investors to remain patient. 

Positives

  • Business and geographical diversity
  • Attractive dividend payment (not guaranteed)

Negatives

  • Uncertain economic outlook
  • Intense competition

The average rating of stock market analysts:

Strong hold

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