Tuesday 12 May 2020 9:24 am

Vodafone pays out dividend but scraps guidance over coronavirus

Vodafone held onto its dividend for 2019 as it narrowed losses substantially despite the coronavirus outbreak, the telco revealed today.

But it scrapped 2021 financial year guidance over the pandemic, though outlined €1bn in cost savings and mooted a possible IPO of its mobile masts company early next year.

The figures

Vodafone booked a loss of €455m for its 2020 financial year, compared to a loss of €7.64bn the previous year.

Read more: BT scraps dividend as Covid-19 and full-fibre rollout hit profit

And operating profit rebounded, soaring from a loss of €951m in the 2019 financial year to €4.09bn.

Meanwhile the telecoms giant grew revenue three per cent year on year to €44.9bn while paying out a dividend of €0.09 per share, or €2.3bn.

And adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) rose 2.6 per cent.

However, net debt surged 56 per cent to €42.2bn, or 2.8 times Ebitda, due to Vodafone’s purchase of Liberty Global assets in Germany and Eastern Europe.

Free cashflow grew 4.7 per cent to €5.7bn, driven by revenue and adjusted Ebitda growth.

Why it’s interesting

Vodafone warned that the coronavirus outbreak will likely prove “significant” for the business and scrapped guidance for the current financial year.

Travel bans hurt revenues

Covid-19 travel lockdowns across the world means Vodafone is earning less from roaming revenues. In the longer term Vodafone expects the squeeze on people’s wallets to hurt it too.

“Whilst our business model is more resilient than many others, we are not immune to the challenges,” the company said.

“We are experiencing a direct impact on our roaming revenues from lower international travel and we also expect economic pressures to impact our customer revenues over time.

“However, we are also seeing significant increases in data volumes and further improvements in loyalty, as our customers place greater value on the quality, speed and reliability of our networks.”

Read more: Vodafone improves guidance but lowers dividend after €1.9bn loss

Vodafone shares jump as it pays dividend

Vodafone’s share price jumped almost six per cent to 119.7p in early trading as the telecom giant kept revenue growing in the three months to the end of March.

Sticking with its dividend may prove a relief to investors, Interactive Investor said. The company has struggled over the past two years and has slashed dividends to combat debt.

Richard Hunter, head of markets at Interactive Investor, said Vodafone is doing well after some difficult times.

“The company remains a prodigious cash generator. The fact that it has maintained the dividend will be a pleasant relief to increasingly starved income-seekers,” he said. 

Many other FTSE-listed firms including rival BT have taken the opportunity to shore up their balance sheets by scrapping investor payments.

Tower sale or IPO could take strain off debt pile

Vodafone also said it would be ready to sell or list a stake in a separate company comprising its 58,000 mobile masts in early 2021.

Chief executive Nick Read said Vodafone was confident of those dates despite the threat coronavirus posed.

“We have management teams in place, we are aiming for financials by the half year in November. Therefore we will be in a good position to IPO or monetise in other options by early 2021,” he told media.

“In the current environment people want the predictability of return [offered by mobile masts] and these are fantastic assets with quality anchor tenants.”

Vodafone also targeted €1bn in annual cost savings within three years through digital initiatives to reduce pressure on call centres.

O2-Virgin Media merger increases competition

Read also said Vodafone was focused on growing organically, playing down the impact of the O2-Virgin Media merger.

“I feel that the appropriate strategy is an organic strategy,” he said. “We remain focused on our organic strategy.”

Read more: How the O2-Virgin Media merger will reshape the telecoms sector

But Hunter warned challenges from its high level of net debt and consolidation in Europe remain a threat.

“All is not plain sailing,” Hunter said. “The ever-present threats of unwaveringly intense competition and vital capital investment remain significant potential drags on cashflow.”

Vodafone said it was confident about its cashflow and predicted it would beat 5bn in 2021.

What Vodafone said

Chief executive Nick Read said:

Vodafone has delivered a good financial performance – growing revenue, adjusted Ebitda and free cash flow – whilst building strong commercial momentum through the year and executing at pace on ourstrategic priorities.

We have also continued to invest in our fixed and mobile Gigabit network infrastructure and digital services, to provide faster speeds for our customers, as well as successfully managing the recent surges in demand.

The services Vodafone provides are more important than ever. We are committed to playing a key role in society’s recovery to the ‘new normal’.

I am pleased with the rapid, comprehensive and coordinated way we responded to the COVID-19 crisis.

I want to give my personal thanks to the entire Vodafone team. Through their dedication, expertise and professionalism, [they] have kept families, friends and communities connected, enabled students to continue their education, helped businesses operate and proactively supported governments to deliver critical services.”