LONDON (Reuters)—Mobile phone giant Vodafone unveiled plans to return an extra 3 billion pounds ($5.6 billion) to investors and hiked its dividends on Tuesday, spicing a well-flagged new strategy to cut costs and embrace new technology.
The British-based firm, under pressure from slowing growth in Europe and rivals with new technologies that link mobile and fixed-line devices, said it was paying out 60 percent of earnings in dividends and would keep future payouts high.
The extra cash for investors helped to overshadow Vodafone announcing the biggest loss in UK corporate history as a result of accounting writedowns, as well as details of a new strategy that will see it axe 400 head-office jobs and enter the fixed-line broadband Internet market.
“We’re very happy with the approach they have taken with the dividend,” said Richard Marwood, a fund manager at AXA Investments. “You are getting a sixth of the company’s market capitalization being returned to you within the next year.”
Shares in the world’s biggest mobile phone operator by revenues rallied as much as 3.5 percent in early trade.
Vodafone said its adjusted basic earnings rose 13 percent to 10.11p per share in the year ended March, topping the average forecast of 9.95p in a Reuters poll of 18 analysts.
But including impairment charges of 23.5 billion pounds, the loss before tax was a colossal 14.9 billion pounds. Its net loss for the year was 21.8 billion pounds, or 35.01p a share.
The firm boosted its annual dividend payout to 6.07p, up 49 percent and smashing analysts’ top forecast of 5.5p.
“It’s a 5-percent yield stock now,” said Dresdner Kleinwort Wasserstein analyst Robert Grindle, adding Vodafone was taking a sensible approach to cost control and introducing new services.
Vodafone , which had already announced plans to return 6 billion pounds to shareholders following the sale of its Japanese unit, said it would raise this total to 9 billion.
Vodafone Chief Executive Arun Sarin has come under pressure from investors and within his own board to spell out a strategy to cope with slower growth in markets such as Germany and Italy where mobile phone ownership is rife and competition is intense.
New Businesses; Happy with Verizon
The firm said it continued to expect modest revenue growth in Europe, but unveiled a plan to cut costs including 400 job cuts at its corporate center and outsourcing some IT activities.
Vodafone ’s “pure-play” mobile operation has come under fire at a time when fixed-line and mobile businesses are converging into a cheaper, single service that works across both networks.
The firm said on Tuesday it had responded with its recently created “New Businesses” unit, and announced plans to launch a series of products including high-speed Internet access in Germany in the third quarter of this financial year.
Vodafone said it would sell businesses where it could not make a strong enough return, but added it remained a happy shareholder in U.S. group Verizon Wireless. Speculation is rife that Vodafone will sell its 45-percent in Verizon Wireless to its joint venture partner Verizon Communications.
Some investors had feared Vodafone , whose takeover of Germany’s Mannesmann in 2000 was the largest in history and contributed along with the Japan sale to Tuesday’s goodwill writedowns, might look to offset slower growth in Europe by making acquisitions in emerging markets or buying a fixed-line operator.
But the company said it expected a lower level of merger and acquisition activity in the future.
Vodafone said it was aiming for a low single-A credit rating and had no plans to return more money to investors. Ratings agency Fitch cut its rating on Vodafone to A- from A.
At 0935 GMT, Vodafone shares were up 2.5 percent at 122-3/4p, the second-highest gainer on the benchmark FTSE-100.
The shares have underperformed European sector peers by about 9 percent over the past 12 months and trade at about 11.4 times forecast earnings, versus a sector average of 12.1.
(Additional reporting by Mark Potter and David Cullen)
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