Nick Read may be the only person who feels any surprise at his own ousting. Investors will ask Vodafone chair Jean-François van Boxmeer why it took so long. The board’s next step should be to appoint a replacement chief executive who can cut the sprawling UK-listed telecoms group down to size.
Read’s parting comments noted his pride in “delivering for customers and society”. He made no mention of shareholders. Over eight years, first as finance chief then as chief executive, Read has presided over a drop of £33bn in market value, more than half the starting total.
Vodafone has paid plenty of dividends. Squeezing costs to free up cash flow protected the payout but did not generate shareholder value. Any gains from slashing overheads were lost to competition in the group’s biggest markets: Germany, Italy, the UK and Spain. They have suffered declining ebitda profitability since Read took over in 2018.
Italy and Spain had huge margin contractions. Spain’s was 9 percentage points, a fifth below the 2018 level. In both countries, bidders showed interest. Vodafone chose not to sell.
Read’s departure does not automatically signal a break-up. Chief financial officer Margherita Della Valle takes over on an interim basis. She would be the continuity candidate to take the job full-time — but continuity is the last thing Vodafone needs.
The company trades at half its book value, which points to the need for disposals. A sum of the parts calculation shows that the bulk of value resides in three big markets: Germany, Italy and the UK.
Even using a low enterprise value to ebitda multiple of six times for Germany and five times for the others, these three could be worth €47.3bn, thinks Numis. That is half of group enterprise value today.
Selling off Spain, smaller European markets plus Egypt and Turkey might raise €17bn. Vodafone could also flog a nearly two-thirds stake in South Africa-listed Vodacom. That might realise another €10.5bn. Vodafone could halve its net debt, which is at present €45.5bn, leaving plenty for a shareholder payout.
For the first time in a quarter century, the shares are persistently trading at less than a pound. Scale has failed to generate value. Van Boxmeer needs to install an outsider chief executive who will pursue focus while dismantling a bureaucracy that is now obsolete.
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