Vodafone has announced that CEO, Nick Read, has agreed to step down as CEO on 31 December 2022. He will remain available as an advisor to the board until the end of March 2023.
Margherita Della Valle, currently serving as CFO, has been appointed interim CEO. She will retain her position as CFO, and hold both roles whilst the board looks for a permanent CEO.
The shares rose 1.7% following the announcement.
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Our view
After four years at the helm, Nick Read is calling an end to his Vodafone reign, after failing to stem what's been a yearlong slide in the group's valuation. There shouldn't be any real changes to the strategy, at the very least, until a new permanent CEO is appointed.
Looking back to half year results, they were largely dominated by a weaker than expected outlook, with profit and cash flow guidance both getting a downgrade. Management pointed to weakening economic conditions and higher energy costs as the main headwinds.
Price hikes throughout Europe are already underway, with 7 markets now linking prices directly to inflation. That should help provide some shelter from increasing costs, but the competitive landscape is challenging so carefully managing price hikes relative to peers is essential.
Looking more broadly, Vodafone's long been focused on rolling out broadband, fixed line and TV services across its European markets, since customer retention is significantly better among those taking multiple products. European business more generally has been a little lacklustre and issues in the key market of Germany, with IT systems slow to get up to speed with new regulation, is a perfect example. A new management team in Germany's now in place, and we're supportive of the group taking decisive action to get back on track.
Outside Europe the Vodacom subsidiary has some exciting growth opportunities in Africa, including M-Pesa which offers mobile financial services. Vodacom's targeting mid-high single digit cash profit growth over the next few years. Africa could become increasingly important as the region develops, and Vodafone's leading position in several markets means it's well positioned to benefit.
Unfortunately, these initiatives don't really address the industry's biggest challenge. Despite the multi-billion investments in mobile spectrum, there's not much differentiating mobile providers other than the price they charge. Customers often just go with the cheapest deal.
Vodafone's net debt pile stood at €45.5bn at the last count, and that doesn't include €12.0bn of lease liabilities. We'd expect debt levels to come down a touch over the second half due to the timing of cash flows. Plus, the Vantage Tower sale which should generate a minimum of €3.2bn, assuming it completes next year.
The essential-service status of mobile networks is a definite benefit of Vodafone, and telecoms generally have some exciting opportunities ahead with the roll out of 5G. But competition remains intense, capital expenditure eye watering, and governments continue to raise prices more than expected when companies bid to use chunks of the electromagnetic spectrum for mobile data, putting pressure on cash flows.
All-in-all then, while we think the portfolio changes and strategy make sense, the fundamental challenges that go with being a telecom remain. With balance sheet pressure mounting and spectrum costs not going away, Vodafone still has work to do before it can be said to be in rude health.
Vodafone key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Half Year Results (15 November 2022)
Half year revenue rose 2.0% to c22.9bn, driven by growth in service revenue and higher equipment sales.
Underlying cash profit before leases (EBITDAaL) fell 2.6% to €7.2bn. Higher revenue was offset by commercial underperformance in Germany and the lapping of a one-off legal settlement received the prior year.
Management warned ''the global macroeconomic climate has worsened, with energy costs and broader inflation in particular''. As a result, guidance for underlying cash profit before leases has been lowered from €15.0-€15.5bn to €15.0-€15.2bn.
Vodafone is looking to extend its cost saving programme, hoping to generate over €1.0bn in additional cost savings by the 2026 financial year.
The group's free cash outflow worsened from €1.0bn to €3.2bn, reflecting lower cash profit and higher licence and spectrum payments. Net debt rose €3.9bn to €45.5bn.
The board announced an interim dividend of 4.5 eurocents per share, in line with the prior year.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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