The new boss of Vodafone cut the mobile operator’s dividend for the first time, securing the firepower it needs to build 5G networks and complete its acquisition of Liberty Global assets.
Nick Read, the former CFO 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 was needed to bring down debt and invest in new technologies.
The company cut the full-year dividend by 40 percent to 9 eurocents a share from 15.07 eurocents in its financial 2018 year and below the 14.55 eurocents that analysts had expected.
Read said the outlook had worsened on multiple fronts since he had said in November that the dividend was safe.
“Our service revenue growth came under further pressure – Spain remains a challenging market, South Africa experienced headwinds – plus clearly the German auction has risen to higher levels than expectation on top of extensive coverage obligations, which require capex,” he told reporters on Tuesday.
The wider economic environment was also not helping, he said, with a lack of visibility in its major European, Middle Eastern and African markets.
“Twelve months back we had a good degree of headroom, by November we had sufficient headroom, and the headroom has been compressed in the last six months,” he said.
Vodafone’s shares have fallen 37% in the last 12 months as investors fretted 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.
Read said that the shares, which had a dividend yield of over 9%, were still paying 5.9% after the cut, ahead of the FTSE average of about 5%. The stock reversed an early loss to trade up 2.5% at 135 pence at 0830 GMT.
Analysts at Jefferies, who rate Vodafone “hold”, said the 40% cut was the minimum needed to relieve leverage concerns.
“Management must now convince that Vodafone is capable of returning to growth to support the progressive dividend policy,” they said.
