Vodafone has slashed its dividend payout to shareholders for the first time in its history as the ballooning cost of buying 5G spectrum in Europe hit its balance sheet.
The company – which traditionally hands investors one of the most generous payouts in the FTSE 100 – cut its full-year dividend by 40% as the company swung to a €7.6bn (£6.6bn) loss for the year to the end of March. It is the first time that Vodafone, which handed over €4bn to investors last year, has made a cut since it started paying out dividends in the early 1990s.
The move marks a U-turn for new chief executive, Nick Read, who took over from Vittorio Colao in October, after he pledged late last year to maintain the dividend. Read cut the full-year dividend from 15.09 euro cents a share to 9 euro cents.
“We did not take the decision to cut the dividend lightly,” said Read. “Our [financial] headroom has been compressed from a combination of slightly lower revenues than expected and [the costs] of spectrum auctions. This [cut] will rebuild financial headroom.”
The prospect of a dividend cut has hurt Vodafone’s share price, which has fallen 35% over the past year and was the third biggest faller on the FTSE 100 on Monday. Shares rose by 3% on Tuesday morning.
“The dividend cut is a massive blow for investors,” said Paolo Pescatore, a telecoms analyst at PP Foresight. “Vodafone’s results highlight the ongoing challenges facing the company in its quest to turn around its fortunes. Huge investment is required to roll out these new ultra-fast networks but it comes at a cost.”
Vodafone has spent almost €4bn on expensive auctions for 5G spectrum in Germany and Italy over the past year which has helped push the company’s debt to €27bn. This will be stretched further when the company completes its €18.4bn deal to buy Liberty Global’s German and eastern European cable assets later this year.
The company also said it will launch 5G in the UK on 3 July starting with London, Liverpool, Manchester, Glasgow, Cardiff, Bristol and Birmingham. Later this year, Vodafone will extend its 5G service to 12 more cities.
Vodafone is using Huawei technology in non-core parts of its network to deliver 5G, in line with last month’s decision in principle by the UK National Security Council.
Read warned that if the government changed tack – the US government is continuing to pressure allies to implement a total ban – it would hold up the UK roll-out of 5G by up to two years.
“It would set the UK back,” said Read. “We won’t be doing 19 cities because Huawei covers a number of those cities. What you will be doing you will be holding back areas of the UK from really experiencing 5G as quickly as they could. I think that would be an unnecessary step.”
Vodafone swung to a loss of €7.6bn, compared with €2.8bn profit last year. The company blamed the losses in part on the loss on the sale of Vodafone India last year. On Monday, Vodafone announced the sale of its NZ mobile business for NZ$3.4bn (£1.7bn).
The company also said that increased competition in Italy and Spain and “headwinds” in South Africa contributed to a 6.2% fall in revenues to €43.6bn.
