Vodafone dividend cut is a cautious move, not cause for panic | Nils Pratley


Nick Read had one big decision to make when he became chief executive of Vodafone last October: whether to keep paying a fat and much-prized dividend costing €4bn (£3.5bn) a year. Defying the sceptics, he came out fighting the following month and declared the distribution to shareholders to be affordable. The analysis sounded semi-credible because he had been the telephony giant’s finance director. The shares enjoyed a rare good day.

Six months later, Read has returned to his calculator and the divi is being slashed, or “rebased” in the silly corporate-speak, by 40%. What’s changed? Nothing solid. The company hit its operational and cashflow targets for the year and the grumble about prices in the German 5G spectrum auction is a distraction; aggressive bidding for capacity is par for the course in the mobile game.

Rather, Vodafone’s boardroom has been infected by caution about debt. About time too, one might say. The company is carrying €27bn of borrowings even before the arrival of Liberty Global’s cable business in Germany and eastern Europe, which will cost €18bn. Paying out 100% of cashflow as dividends, after subtracting spectrum and semi-permanent annual restructuring costs, left zero room for error. The chairman, Gerard Kleisterlee, could have done Read a favour by urging caution last November; an early U-turn looks poor.

Take the long view, though, and this dividend cut has been coming. Back in 2014, when Vodafone sold its huge Verizon Wireless stake, the share price was 240p and mobile telephony and data still felt like an exciting business. Half a decade later, the signal is weaker as competition, tougher regulators and low growth have arrived. The share price is 127p and the dividend yield, even on the new basis, is a utility-like 6%.

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Indeed, in investment terms, it’s probably now right to think of Vodafone as a dull utility or infrastructure operator – a sort of Severn Trent with bigger numbers and less risk of nationalisation.

The staff get Richer

Julian Richer scoops the prize for the most employee-friendly act of the day. He’s handing ownership of 60% of his Richer Sounds chain to a staff trust on generous financial terms.

In the old days, employees in the best-performing Richer Sounds stores were given use of a Bentley car for a month. Now they can all own the business, demonstrating that the most likeable man in retailing meant what he said about giving credit to colleagues. Well played.

In other employment news, Capita, the outsourcer less loved by the outside world, will appoint two workers to its board as non-executive directors – Lyndsay Browne, a finance manager, and Joseph Murphy, a project manager. This is also remarkable.

The rarity value lies in the fact that Capita reckons it is the first FTSE 250 company since FirstGroup in the early 1980s to put an employee on the board with the same duties and responsibilities as other directors and the same fee (£64,500) as other non-executives. The chairman, Sir Ian Powell, says Capita wants to ensure that “the employees’ perspective and increased diversity of thought are represented at board level”.

That ambition reads as entirely unthreatening, but is resisted by most of the rest of the quoted-company world. When Theresa May, before she lost her parliamentary majority, muttered about putting workers on boards, there was uproar. Lobbyists were rolled out to denounce the idea as unworkable and the old guard got their way.

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The resistance among fund managers to employee-directors, however, is more baffling, and Capita is a case in point. The company almost killed itself in the recent past as former executives chased impossible-to-meet profit targets pledged to the City. The business “never had a strategy” and nobody was accountable, declared the chief executive, Jonathan Lewis, soon after his appointment last year.

Would an employee-director, with a direct line to the shop floor and wider interests, have spotted the strategic vacuum and protested? There are no guarantees, but it’s where diversity of thought should come into its own.

It improves the chances of somebody blowing the whistle on self-delusion among the long-term incentive plan beneficiaries. If you’re an outside investor with limited visibility, why would you say no?

Standard warning

Ho ho: Standard Life Aberdeen, the FTSE 100 asset manager, has seen other fund managers revolt against its remuneration report. The local cause was the pay package for the incoming chief financial officer, but these things tend to happen more often at companies whose share prices have plunged. There was a whiff here of a warning to Keith Skeoch, now its sole chief executive, to deliver more of the supposed merger goodies, sharpish.



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