Vodafone Cuts Dividend to Reduce Debt Load Ahead of 5G Launch -- Update

Date : 05/14/2019 @ 1:50PM
Source : Dow Jones News
Stock : Vodafone Group Plc (VOD)
Quote : 162.04  1.4 (0.87%) @ 9:40AM
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Vodafone Cuts Dividend to Reduce Debt Load Ahead of 5G Launch -- Update

Vodafone (LSE:VOD)
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--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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