Vodafone hikes dividend for first time in eight years after Three UK tie-up

Vodafone has upgraded its annual outlook for both earnings and cash flow after the telecoms giant returned to top-line growth in Germany in the second quarter. 

The business, which has seen revenues bolstered by its merger with Three in the UK, on Tuesday also revealed its first dividend hike in eight years. 

It was forced to slash its dividend by 40 per cent in May 2019 after the cost of buying 5G spectrum in Europe caused debts to swell. 

Vodafone told shareholders it expects its dividend to rise by 2.5 per cent for the financial year, with its interim dividend set at 2.25 eurocents per share.

The mobile and broadband firm said it achieved ‘good’ performance in the UK  over the quarter, and was ‘driving cost synergies at pace’ following its merger with Three.

VodafoneThree surpassed O2 as the UK’s biggest operator when the joint venture completed in May.

On the up: Vodafone upgraded its annual outlook for both earnings and cash flow on Tuesday

The FTSE 100 firm said it had signed new long-term new partnership agreements and begun a property ‘consolidation’ plan. 

In a move widely expected to lead to job cuts, Vodafone said it was also undertaking ‘large contract rationalisation programmes, whilst merging and simplifying the two organisations’. 

Vodafone shares rose 5.67 per cent or 5.04p to 93.96p on Tuesday, having risen over 28 per cent in the past year.  

Cost synergy savings are expected to reach around £700million a year on full completion.  

Vodafone has said it expects its annual profit to sit at the top end of forecasts as the company produced its first set of results after completing its merger with Three. 

The group said it saw 1.2 per cent growth in the UK in the six months to the end of September, while Germany, a key market, returned to growth after a prolonged period of shedding customers amid changes to TV contract rules.

Total group revenue jumped 7.3 per cent, due to the inclusion of Three’s financials, to €19.6million, while pre-tax profit was unchanged at €2.1billion.

Adjusted earnings rose 5.9 per cent to €5.7billion, ahead of the expected €5.62billion, while operating profit slipped 9.2 per cent to €2.2billion, largely due to the depreciation effects of the Three UK merger. 

The group said it now expected to deliver the upper end of it guidance ranges for adjusted core earnings of €11.3billion to €11.6billion, with an adjusted free cash flow of €2.4billion to €2.6billion for the year. 

Vodafone also announced plans to start a share repurchase programme of ordinary shares in its share capital of $0.20 each up to a maximum consideration of €500million.

Chief executive, Margherita Della Valle, said: ‘Based on our stronger performance, we are now expecting to deliver at the upper end of our guidance range for both profit and cash flow, and as our anticipated multi-year growth trajectory is now under way.’

She added: ‘In the second quarter we saw service revenue accelerating, with good performances in the UK, Turkey and Africa, and a return to top-line growth in Germany.’ 

Richard Hunter, head of markets at Interactive Investor, said: ‘The shares have languished for some considerable time, having fallen by 65 per cent over the last ten years and by 24 per cent over the last five. 

‘However, more recent progress has been reflected in a bounce of 23 per cent over the last year, as compared to a gain of 20.5 per cent for the wider FTSE 100 and a warm reception to the update at the open. 

‘While the strategy is clear, the transformation in train and the valuation undemanding, the market consensus of the shares as a hold reflects that caution will remain the watchword for investors as the transformation unfolds.’

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