London — Britain’s Vodafone — parent of SA's Vodcom — forecast a jump in cash generation this year, allowing it to reward shareholders with a higher dividend as it eases back on network investment and moves to solve problems in India where a new price war has broken out.
The company’s upbeat outlook sent its shares more than 4% higher, relieving investors after a tough year în which the group suffered a €6.1bn loss, dragged down by last year’s $5bn write-down on Vodafone India.
CEO Vittorio Colao said that excluding the Indian business, adjusted core earnings rose 5.8% to €14.1bn, beating market expectations, and growing faster than revenue as the company improved efficiency.
He said earnings would grow by between 4% and 8% this year to €14bn-€14.5bn. Analysts had pencilled in €13.8bn.
Vodafone would generate about €5bn of cash, up from €4.1bn last year.
The company said the level of cash generation, combined with growth and a robust balance sheet enabled it to “confirm a progressive dividend policy”.
The final dividend was increased by 2% to 10.03 euro cents.
“We are getting into a space where we see a balance between our investment needs, rewarding our shareholders and having good enough cash flow to pay for spectrum,” Colao told reporters.
Analysts at Jefferies, who have a “buy” rating on the stock, said progress in reducing costs supported Vodafone’s confident dividend growth guidance.
“Vodafone reasserts its intention to grow its dividend per share annually — consensus has dividend flat — a message that might be seen as contrasting against BT’s more hesitant outlook last week,” they said.
Struggling with a different set of problems, rival BT said last week, in raising its dividend by 10%, that the growth rate would not be the same next year.
For Vodafone the growth in free cash flow, which will come as the company reduces investment following completion of its Project Spring programme to improve its networks in Europe and other markets, is ahead of analysts’ predictions of €4.66bn.
Regulatory headwinds in Europe, however, mean Vodafone’s progress has been bumpy in the last year and will not be completely smooth in the year ahead.
Organic service revenue growth slowed to 1.5% in the final quarter from 2.1% in the third, due in part to reductions in roaming charges in Europe.
Chief financial officer Nick Read said regulation would continue to weigh this year, with a drag of about one percentage point.
The weak point in Europe for Vodafone was its home market, where revenue fell 4.8% in the final quarter as it still battled to recover from the implementation of a new billing system more than a year ago.
Colao said the revenue decline was “flattening“, although the market remained highly competitive.
Organic service revenue in Africa, Middle East and Asia Pacific grew 6.8% in the final quarter, it said.
The impact of new cut-throat competition in India with the switching on of new market entrant Reliance Jio’s $20bn network was laid bare by a 11.5% drop in service revenue in the final quarter.
Vodafone agreed in March to combine its operations with Idea Cellular in a $23bn deal aimed at creating the country’s biggest telecoms business.