Vodafone Prepares For Major Investments While Cutting Dividend

Vodafone is preparing to halve its dividend as it embarks on significant investment in its mobile networks. The telecoms giant, listed on the FTSE 100, announced a payout of 9 cents per share for 2024 but plans to reduce this to 4.5 cents per share from the next year. This move is part of a strategy to ensure long-term financial stability and growth.

The company explained that the new dividend level is designed to maintain a sustainable cash flow and provide flexibility for future investments. "This adjustment allows us to ensure proper cash flow cover and invest adequately in the business for growth," Vodafone stated.

The decision coincides with Vodafone's report of a return to revenue growth in the fourth quarter, reflecting early successes in CEO Margherita Della Valle’s turnaround strategy. Service revenue rose by 6.3% to €29.9bn (£25.7bn), marking a positive shift for the telecoms business. Despite this, overall revenues fell by 2.5% to €36.7bn, following the sale of its towers business stake and the disposal of its operations in Hungary and Ghana last year. Operating profit stood at €3.7bn, a significant drop from the previous year’s peak. Nevertheless, the company's shares saw an early rise of up to 3%.

Ms Della Valle has been steering Vodafone through a period of consolidation, focusing on streamlining its European operations to foster growth. Over the past five years, Vodafone's shares have fallen by more than 40%, driven by shrinking margins in a fiercely competitive market. 

In a recent development, Vodafone secured final approval for a €5bn deal to sell its Spanish business to Zegona. Additionally, an €8bn agreement to offload its Italian operations to Swisscom has been struck. These two divisions are now classified as discontinued operations and excluded from Vodafone’s financial results. The proceeds from these sales will be used to repurchase up to €4bn worth of shares.

In the UK, Vodafone is seeking to complete its £15bn merger with Three. The deal has cleared national security checks but is under scrutiny from competition regulators due to concerns it might lead to higher prices for consumers. Vodafone and Three have dismissed these fears, arguing that the merger is crucial to gaining the scale needed for 5G investments.

Vodafone has also pledged an additional €100m to enhance customer experience, including improvements in call centres. The company is two-thirds of the way through a plan to cut 11,000 jobs, part of a broader effort to streamline operations and reduce costs.

In Germany, Vodafone's largest market, the company returned to growth last year, with a 0.2% increase in service revenue to €11.5bn. This growth was tempered by changes in German TV laws affecting its cable business. Earnings in Germany fell nearly 6%, which Vodafone attributed to rising energy costs and inflation. In the UK, Vodafone saw a 5.4% rise in mobile service revenues, buoyed by substantial price increases earlier in the year.

Ms Della Valle acknowledged the initial successes of Vodafone's transformation plan but stressed that significant work remains. "We will increase our investment in customer experience, improve our underlying performance in Germany, and boost our business momentum. At the same time, we will continue to simplify our operations across the group. We are fundamentally transforming Vodafone for growth," she stated.

Vodafone's strategy reflects a broader trend in the telecoms industry, where companies are balancing the need for substantial infrastructure investments with the demands of shareholders. As Vodafone navigates this landscape, its focus on strategic divestitures, cost-cutting, and network enhancements aims to position the company for sustainable long-term growth.