Abu Dhabi, UAETuesday 26 May 2020

Vodafone posts Dh31bn loss and slashes dividend

New CEO says move to cut one of the biggest payouts in UK not taken lightly but showed need to pay down debt and invest

A Vodafone store in London. The company says it must tackle debt and invest more. EPA
A Vodafone store in London. The company says it must tackle debt and invest more. EPA

The new boss of Vodafone slashed the mobile operator's dividend on Tuesday, reversing a pledge to maintain the payout in order to secure enough firepower to build 5G networks and complete its acquisition of Liberty Global assets.

Full-year results to the end of March showed the group came under intense competitive pressure in Spain and Italy, according to Reuters, while impairments recorded earlier in the year pushed the group into a loss of €7.6 billion (Dh31.36bn).

Nick Read, the former chief financial officer who has been in the top job since October, said the decision to cut one of the biggest payouts in Britain had not been taken lightly, but showed the need to pay down debt and invest in the world's second largest mobile player.

The company cut the full-year dividend to 9 euro cents a share from 15.07 euro cents in its financial 2018 year and below the 14.55 euro cents that had been expected.

"These challenges weighed on our service revenue growth during the year, and together with high spectrum auction costs have reduced our financial headroom," Mr Read said.

"The board has made the decision to rebase the dividend, helping us to reduce debt."

Vodafone shares opened 2 per cent lower in London before swiftly erasing most of those losses.

The stock has fallen 37 per cent in the last 12 months as investors fret about the cost of acquiring Liberty Global's cable assets in Germany and some other eastern European markets, the outlay on new spectrum for 5G services and tougher conditions in some European markets.

Organic service revenue, a key industry measurement, fell 0.6 per cent in the fourth quarter, which Mr Read said should be the low point.

Vodafone reported group revenue of €43.7bn for the year to end-March, down 6.2 per cent, with an operating loss of €951 million.

Adjusted core earnings rose 3.1 per cent on an organic basis, in line with Vodafone's guidance and analyst expectations.

For the 2020 financial year, Vodafone said it expected adjusted core earnings of €13.8bn to €14.2bn, implying low single digit organic growth, and free cash flow pre-spectrum of at least €5.4bn.

Mr Read had said at the half year the dividend was affordable at the current levels and once the company brings debt back towards the lower end of its range, the board would consider returning to dividend-per-share growth.

He said on Tuesday the new policy ensures the dividend will be secure going forward.

Mr Read has reset Vodafone’s strategy since taking charge, according to Bloomberg. He’s accelerated cost cuts, put assets on the block and wants to share the burden of maintaining and developing networks with other carriers. Vodafone moved to free up some cash late Monday with a $2.2bn deal to sell its New Zealand business to a consortium including Infratil and Brookfield Asset Management.

With the savings from some of those measures taking time to appear, analysts were penciling in a likely dividend cut to avert credit rating downgrades that would have pushed Vodafone debt closer to junk territory.

Updated: May 14, 2019 11:49 AM



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