The axman cometh. Or, rather, the axman keeps swinging. Having already slashed operating costs by €800 million ($866 million) in the last two fiscal years, Vodafone CEO Nick Read is looking for additional scalps as the UK-based operator targets another €1 billion ($1.1 billion) in savings over the next three. In Europe, that would imply a cost reduction of one fifth over this five-year period, with customer care and distribution in line for the biggest chops.

Ax-swinging has paid off for Vodafone, which today revealed that its margin for earnings (before interest, tax, depreciation and amortization) has gained nearly five percentage points in the last five years, to 33.1% for the one just ended. That has helped to protect cash flow and dividends as sales come under pressure. Coronavirus has had a limited impact so far, but roaming revenues are down and fewer new customers are signing up. Even with cuts, earnings are likely to be "flat" or "slightly down" this year, warned Read.

The good news for shareholders is that Vodafone, unlike UK rival BT, is not taking the ax to its dividend. Today, it promised to pay €0.09 per share for the fiscal year that ended in March, 12 months after the figure was cut from €0.15. That will buoy investors worried that BT's decision to cancel dividend payments would persuade others to follow suit.

Vodafone's other numbers represent a mixed bag. Takeover activity fueled 3% growth in sales, to nearly €45 billion ($48.7 billion), while operational improvements in some European markets led to a 0.8% "organic" increase in service revenues, to €37.9 billion ($41 billion). Last year, Vodafone recorded a huge loss of €7.6 billion ($8.2 billion), triggered by the merger of its Indian business with rival Idea Cellular. This time round it managed to lose only €455 million ($492 million), blaming this on further losses in India plus other writedowns.

The most notable and worrying change was to net debt, which soared to €42.2 billion ($45.7 billion) from about €27 billion ($29.2 billion) a year earlier. The increase relates mainly to Vodafone's €18.5 billion ($20 billion) takeover of Liberty Global assets in Germany and other European markets. The figure is at least down from €48.1 billion ($52.1 billion) in September, and at 2.8 times earnings it remains within a target range of 2.5 to 3, said Vodafone. But the lack of wiggle room demands prudence from Read.

Helpfully, Vodafone's European towers company is now operational after the company previously said it would spin off its mobile infrastructure and seek investment in that business. Last July, Read estimated this company, comprising about 62,000 European towers, could be worth as much as $20 billion. A public listing or part sale would raise cash for debt reduction and other strategic initiatives. "Monetization," said Vodafone in today's presentation, is now the "primary focus."

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Investors were relatively chuffed this morning, sending Vodafone's share price up 5% during early-morning trading in London. It has slumped 28% since November, but that still leaves Vodafone in a better position than many other big companies battered by the pandemic. The commitment to pay dividends will, of course, be what most shareholders wanted to hear.

Employees may feel differently. Staff numbers have already tumbled, falling from 111,684 in the fiscal year ending in March 2016 to just 98,996 three years later. Divestment activity in the Netherlands and India was largely responsible for that reduction, but there were also 2,820 job cuts in Germany, Italy, Spain and the UK during the 2018 and 2019 fiscal years, equal to about 7% of total headcount in those markets. What happened to Vodafone's workforce in the most recent fiscal year will not be known until the operator publishes its annual report. But talk of another €1 billion ($1.1 billion) in savings shows the axman is still swinging.

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— Iain Morris, International Editor, Light Reading