Vodafone CFO Says Dividend Covered Without Verizon Payment
Vodafone Group Plc (VOD), the second- largest wireless service provider, isn’t relying on cash from its stake in Verizon Wireless to pay its dividend as it navigates its way out of a European recession.
“The amount of cash we generate at the moment is a little higher than the dividend that we pay out,” Chief Financial Officer Andy Halford said in an interview yesterday in the company’s London office. “If we did not get a U.S. dividend, it would absolutely not be a problem for us.”
The future of Verizon Wireless, formed in 1999, has become a focus among investors since Bloomberg News reported last month that controlling partner Verizon Communications Inc. (VZ) wants to buy the Newbury, England-based company out of one of its most profitable businesses this year. Analysts have said Vodafone’s 45 percent stake in the largest U.S. mobile-phone carrier could be worth $115 billion, rivaling Vodafone’s market capitalization of $144 billion.
Since the March 5 Bloomberg report, Vodafone shares have risen about 15 percent.
Verizon said this month it would like to buy Vodafone’s stake, though it doesn’t have plans for a full merger. New York- based Verizon CFO Fran Shammo said last week that the taxes on a deal, which analysts have said could reach tens of billions of dollars, wouldn’t necessarily result in a heavy tax burden.
Halford declined to comment on plans for the Verizon Wireless stake. Bob Varettoni, a spokesman for Verizon, also declined to comment.
Halford called Vodafone one of the most successful British companies formed in the past 30 years, citing its operations in about 30 countries and that its brand is licensed in another 50. Revenue excluding sales from Verizon Wireless grew 1.2 percent in the last fiscal year to 46.4 billion pounds ($70.8 billion). The company has 400 million customers, more than any other wireless service provider except for China Mobile Ltd. (941), he said.
Still, analysts predict revenue will fall to 44.5 billion pounds when the company reports results for the most recent year, ended March 2013, on May 21.
“They’re saying our dividend is fine even without the money from the U.S. business; therefore, even if there is no deal, you shouldn’t worry about our dividend,” Robin Bienenstock, an analyst at Sanford C. Bernstein, said by phone. “Clearly Verizon is putting a lot of pressure on Vodafone by making it so public and so clear that they would like to buy that stake.”
Vodafone paid 6.64 billion pounds in dividends last year. That included a special payout of 2 billion pounds that came through a 2.9 billion-pound payment from Verizon.
Vodafone slipped almost 1 percent to 193.20 pence in London trading. Verizon Communications dropped 1 percent to $51.80 at the close in New York.
Verizon Wireless’s growth has been a bright spot for Vodafone, whose biggest markets are in economically troubled Europe. Vodafone, which receives cash from the venture through special dividends, was paid $8 billion from the partnership last year after not getting a dividend since 2005.
At home, Vodafone is looking for new areas to expand as its mobile service in Europe is pummeled by heavy competition that keeps prices down, declining economies, and a regulatory environment that makes mergers difficult. Service revenue fell for two consecutive quarters last year as customers cut back on spending. Vodafone took a 5.9 billion-pound writedown over its businesses in Spain and Italy last year.
“I think it would be fair to say it’s still quite tough,” Halford said. “It’s premature to say we can see the green shoots.”
The company has unveiled almost 2,000 jobs cuts in Germany, Italy and Spain as part of an initiative that led to more network sharing with other carriers and joint ventures for fiber rollout to cut costs.
“Vodafone has taken out as much cost today as we can reasonably envisage,” Halford said. “Taking costs out is a journey, and it’s one of progressively looking at areas to be more efficient. It’s not all about jobs.”
To combat the declines in Europe, Vodafone is targeting increased smartphone adoption and data use, fourth-generation network rollouts, mobile payments and cloud storage services and connected devices for business customers, Halford said.
Mobile-wallet applications that let customers pay online and in-store using credit and debit card information stored on their phones will become increasingly popular in the next year, Halford said. Enterprise services such as cloud storage for documents and software and machine-to-machine applications like tracking services for long-haul companies make up about a third of revenues and are growing faster than other businesses, he said.
“The governments around Europe have made spectrum available for 4G technology,” Halford said. In the next five years, “we are starting very much with a clean sheet of paper in terms of the revenue we can generate from 4G services, which is not just a dream if one looks at the U.S. where 4G has already launched.”
To contact the reporter on this story: Amy Thomson in London at email@example.com