Vodafone free cashflow pledge eases concerns over dividend

  • Business
  • Wednesday, 17 May 2017

Branding for Vodafone is seen on the exterior of a shop in London, Britain, September 10, 2015. REUTERS/Toby Melville

LONDON: Vodafone Group Plc promised to increase free cashflow by 23% to about 5 billion euros (US$5.5bil) this year and continue growing its dividend after splitting off its money-losing Indian operation into a joint venture.

The world’s second-largest mobile-phone carrier gave the forecast while releasing fourth-quarter results yesterday that met analysts’ estimates, though writedowns in India dragged Vodafone into a loss for the year ended March 31.

Stronger free cashflow, while still well below levels from just a few years ago, showed the company could cover its investments and dividend, executives said on a conference call.

“We are getting into a space where we see a balance between our investment needs,” rewarding shareholders and paying for spectrum, chief executive officer Vittorio Colao said on the call with reporters. “The broad direction is that these three things are becoming compatible.”

Vodafone advanced as much as 3.3%, on track for its biggest gain since July 2016. The shares were up 2.9% to 217.25 pence at 8:09am in London yesterday, bringing its year-to-date gain to 8.8%.

Colao has been reshaping Vodafone with deals in the Netherlands and India to maximise profit and stop the damage from troubled markets like India, where heightened competition pushed the company to join forces with Idea Cellular Ltd.

The company, based in Newbury, England, is vying with better-integrated rivals, leading to speculation it will be drawn into more deals, particularly in Europe, and criticism that it’s becoming more of a holding company.

Vodafone’s moves to tidy up its emerging-markets businesses including Africa, as well as a recent Dutch joint venture with Liberty Global Plc, have spurred investor optimism for more tie-ups between the two companies in the UK and Germany, or on a bigger scale.

Liberty’s billionaire chairman John Malone told the Financial Times the operators had struggled in talks with valuation and finding synergies, according to a report last week.

Vodafone’s free cashflow guidance, which excludes mergers and acquisitions, spectrum and restructuring costs, has been highly anticipated by analysts, who have questioned the dividend’s sustainability.

The company said it delivered total dividends per share of 14.77 euro cents for the year ended March 31, up 2%.

Free cashflow after wireless-spectrum costs “should cover the dividend in fiscal 2018 for the first time in years,” analysts at Goldman Sachs wrote in a research note. “We expect improved confidence from today’s results.” — Bloomberg

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