Vodafone Cuts Dividend to Reduce Debt Load Ahead of 5G Launch -- Update
May 14 2019 - 8:50AM
Dow Jones News
(Adds details and context)
--Vodafone slashed its dividend 40% to ease debt constraints in
its balance sheet
--The company swung to a pretax loss for fiscal 2019 on charges
in India, Spain and Romania, but adjusted earnings met guidance
--Vodafone is set to launch 5G services across seven U.K. cities
on July 3
By Adria Calatayud
Vodafone Group PLC (VOD.LN) has cut its dividend for the first
time in more than two decades, as the telecoms giant bids to reduce
its debt load and strengthen its balance sheet in preparation for
its launch of next-generation 5G networks next month.
The U.K. telecommunications company on Tuesday slashed its
full-year dividend 40% after swinging to a loss for the year ended
March 31. The move broke Vodafone's streak of increasing payouts to
shareholders without interruption since 1998, but analysts say it
will put the company on stronger footing for the 5G rollout.
Vodafone had previously said it expected to maintain its fiscal
2019 dividend unchanged on the year, but then lowered it to 9
European cents a share from 15.07 European cents a share.
The dividend cut will help the group reduce debt and delever
toward the low end of its target range in the next few years, Chief
Executive Nick Read said. The company, which is in the process of
acquiring Liberty Global PLC's (LBTYA) operations in Germany, the
Czech Republic, Hungary and Romania, intends to keep net debt
within a range of between 2.5 and 3 times adjusted earnings after
the deal. Vodafone expects to close the acquisition in July.
"The group is at a key point of transformation" Mr. Read
said.
Vodafone's already large debt burden, combined with high
auction-bidding costs for 5G spectrum in countries like Italy and
Germany had caused concern among investors, analysts said.
"The reduction to the dividend is prudent, given the enormous
constraints on cash flow, not to mention that dividend cover had
slipped to unsustainable levels," Interactive Investor Head of
Markets Richard Hunter said in a note.
Vodafone swung to a pretax loss of 2.61 billion euros ($2.94
billion) in fiscal 2019 from a profit of EUR3.88 billion in fiscal
2018, mainly due to a loss on the disposal of Vodafone India after
the unit merged with Idea Cellular, as well as impairment charges
in Spain and Romania, the company said.
Adjusted earnings before interest, taxes, depreciation and
amortization--the company's preferred profit measure--rose 3.1% on
an organic basis, in line with the company's guidance of around 3%
underlying organic growth, Vodafone said.
Revenue for fiscal 2019 fell 6.2% to EUR43.67 billion from
EUR46.57 billion, the company said. Analysts had forecast revenue
of EUR45.01 billion, according to a consensus based on estimates by
15 analysts provided by FactSet.
Organic service revenue--a figure closely-watched by analysts
which measures what the company makes from selling telecom
services--rose 0.3% for the full year, but fell 0.6% in the fourth
quarter, Vodafone said.
Vodafone said it was hit by heated competition in Spain and
Italy and by headwinds in South Africa during the fiscal year,
though commercial trends in Italy and Spain showed signs of
stabilization in the last quarter.
For the year ahead, Vodafone guided for adjusted Ebitda of
between EUR13.8 billion and EUR14.2 billion and free-cash flow
before spectrum costs of at least EUR5.4 billion.
Vodafone on Tuesday became the first company to confirm a U.K.
launch date for 5G saying it will roll out 5G services in seven
cities across the U.K. on July 3, with 12 other cities expected by
the end of 2019.
The company said it is actively exploring options to monetize
its telecommunications towers in Italy, the Netherlands, Spain and
the U.K. as part of cost-reduction efforts started in November. As
part of those efforts, Vodafone on Monday said it sold its New
Zealand business to a consortium of Infratil Ltd. (IFT.NZ) and
Brookfield Asset Management Inc. (BAM) and in recent weeks has
signed network-sharing agreements across Europe.
Write to Adria Calatayud at
adria.calatayudvaello@dowjones.com
(END) Dow Jones Newswires
May 14, 2019 08:35 ET (12:35 GMT)
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