Vodafone cuts payout to “rebuild headroom”

It does, perhaps, come as a relief that Vodafone intends to pursue a progressive dividend policy from its rebased position – although some may remain sceptical. As recently as last November, the group had planned to maintain the previous year’s payout.

Chief executive Nick Read explains that increased competition in Spain and Italy, headwinds in South Africa and high spectrum auction costs have reduced “financial headroom”. Lower dividend payments should help to reduce debt and “delever to the low end of our target range” (2.5 to 3 times cash profits) “in the next few years”.

Spectrum set the group back €0.8bn (£0.69bn) last year, albeit with a view to supporting the roll-out of 5G services. After this, and cash restructuring expenses, free cash flow came in at €4.4bn. Vodafone is taking part in Germany’s auction, and – as at 13 May – was the highest bidder in respect of 12 blocks of spectrum, with bids totalling €1.68bn (although the outcome remains uncertain). Net debt was down, but still constituted a hard-to-ignore €27bn.

Turning to the profit-and-loss account, a dip in sales reflected currency movements, new accounting rules and the Vodafone Qatar disposal. Meanwhile, a decline into the red came after impairments and a loss on the disposal of Vodafone India.

For FY2020, Vodafone expects adjusted cash profits of €13.8bn-€14.2bn, with pre-spectrum free cash flow of at least €5.4bn. Such goals are, ostensibly, underpinned by its portfolio optimisation plans – including the €2.1bn sale (announced just before these results) of its New Zealand business, and its €18.4bn acquisition of assets from Liberty Global – which, all being well, should complete in July.

JPMorgan forecasts adjusted pre-tax profits of €3.06bn and EPS of 7ȼ for FY2020, against €2.54bn and 5ȼ in FY2019.