Vodacom Group parent Vodafone Group’s dividend has cracked under the strain of falling revenue, soaring spectrum costs and a US$21-billion acquisition, in a grim reality check for Europe’s struggling phone industry.
The region’s biggest telecommunications carrier slashed its full-year dividend by 40% to €0.09/share, reversing CEO Nick Read’s pledge to keep the payout unchanged. The shares fell as much as 2.9% in early trading.
Vodafone needs to conserve cash as sales in major markets such as Spain and Italy come under sustained attack from rivals offering no-frills contracts such as Masmovil Ibercom and Iliad. The company is gearing up to spend billions of euros on fixed-line and mobile network upgrades and the airwaves needed for the next generation of ultra-fast wireless services.
Vodafone’s organic service revenue fell 0.6% in the fourth quarter from a year earlier, versus the 0.7% drop forecast by analysts in a company-compiled consensus, as sales declines worsened in Italy and Spain.
Read said Vodafone was at a “key point of transformation” as it accelerates a digital overhaul, simplifies operations, generates better returns from its infrastructure and continues to “optimise our portfolio”.
“To support these goals and to rebuild headroom, the board has made the decision to re-base the dividend, helping us to reduce debt and de-lever to the low end of our target range in the next few years,” he said in a results statement.
Vodafone shares pared an early decline to trade unchanged at 8:09am in London.
Vodafone’s problems are compounded by former national monopolies reasserting themselves thanks to large legacy networks that are well-equipped handle surging data traffic, challenging Vodafone at the premium end of the market.
Read has reset Vodafone’s strategy since taking charge in October. 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 on Monday with a NZ$3.4-billion (US$2.2-billion) 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 pencilling in a likely dividend cut to avert credit rating downgrades that would have pushed Vodafone debt closer to junk territory.
That would cast a cloud over the €18.4-billion purchase of Liberty Global assets in Central and Eastern Europe.
Investors frustrated at failed efforts to revive revenue growth have pushed Vodafone shares to their lowest in a decade. The stock has continued to underperform its peer group this year, falling 16% compared to a 4% fall in the Stoxx Europe 600 Telecommunications Price Index. — Reported by Thomas Seal, (c) 2019 Bloomberg LP