Vodafone to cut €1 billion in costs and raise prices due to economic headwinds

Vodafone on Tuesday revealed hefty cost-cutting measures to help mitigate the impact of the worsening economic climate, as well as reducing its full-year earnings and cash flow guidance.

The announcement came alongside the publication of the telecoms group’s first half 2023 financials, which were less than stellar, showing a decline in adjusted EBITDA on the back of a weak performance in Germany, a market that has been something of a thorn in Vodafone’s side in recent quarters.

Unsurprisingly, the operator’s share price tanked. Investors did not like what they saw and drove it down by 7% at time of writing.

Consumers may well not like it either. Vodafone sneaked in a comment on planned price rises, although it chose its words very carefully and didn’t actually give much away.

“We are taking a number of steps to mitigate the economic backdrop of high energy costs and rising inflation. These include taking pricing action across Europe, whilst at the same time supporting our most vulnerable customers and driving energy efficiency measures across the business,” said Vodafone’s group chief executive Nick Read, in a statement.

“Pricing action” can really only mean one thing. And indeed, later in its report Vodafone noted that it has implemented pricing “initiatives” in 12 of its 13 European markets, including contractual price increases, reduced promotional discounts and new ARPU boosting product portfolios. It also pointed out that it has inflation-linked pricing structures in seven European markets, one of which is the UK, where these types of increases have been something of a hot button issue of late.

Nonetheless, Vodafone’s UK performance was supported by price hikes in both fixed and mobile in the March-to-September period, with service revenues and adjusted earnings showing growth of around the 7 percent mark year-on-year.

The UK is Vodafone’s second biggest European market after Germany, where ongoing issues dragged down its headline figures at group level. Service revenue fell by 0.8 percent to €5.7 billion in Germany, hit primarily by broadband customer losses, in turn pushing down adjusted EBITDAaL 7.4 percent; the latter figure was also impacted by one-off settlements in the previous year and higher customer acquisition costs.

This “commercial underperformance in Germany” dragged down group earnings by 2.6 percent, while a 1 percent rise in group service revenue to €19.2 billion came despite weakness in Germany, Italy and Spain; the UK and Africa helped buck the trend.

Nonetheless, Vodafone needs to take action to shore up its finances, and as well as increasing prices and a undertaking a raft of energy efficiency measures – we’re talking reductions at base station sites and data centres, network modernisation, and using AI and analytics, as well as increasing the use of renewable energy – the telco requires efficiencies across the board.

“We are also announcing today a new cost savings target of €1+ billion focused on streamlining and further simplifying the Group,” Read said.

Vodafone aims to generate that additional level of cost-savings by financial year 2026, it said. It will simplify its overall structure and further accelerate the digitalisation of its operations.

Increased cost-savings hardly come as a shock in the current climate. Indeed, BT’s half yearly figures, published a fortnight ago, included an extra £500 million in cost-cutting measures by the end of FY2025, and there will doubtless be others making similar calls.

But Vodafone also cut its full-year guidance, figures it laid out as recently as May, which will not have helped its stock price.

It now expects to generate adjusted EBITDAaL of €15 billion-€15.2 billion, the top end of its previous forecast having been €15.5 billion, and sees adjusted free cash flow coming in at €5.1 billion, as opposed to €5.3 billion.

Read’s comments are relentlessly optimistic, the CEO talking up Vodafone’s “resilient performance” and prospects for “long-term growth.” But the telco has antsy investors to please, and this report is unlikely to do that.

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