Vodafone’s operating cost savings keep its dividend afloat

The financial strain COVID-19 is having on telcos is beginning to show.

 

Last week, BT announced that it was suspending its current dividend and that of next year, estimating a saving of £2.5 billion. Prior to this, Orange announced it was reducing its dividend by 30% as a result of coronavirus-related losses.

 

Today, however, Vodafone bucked the trend, announcing that it will be maintaining its dividend.

 

In its latest financial update, Vodafone has shown that their latest round of operating cost cuts are helping to bolster their cash flow and, subsequently, their dividends. In the last two fiscal years, Vodafone has reduced operating costs by €800 million, which has considered significantly to the nearly 5% increase (reaching 33.1%) in the company’s margin for earnings in the last five years.

 

However, these cuts are not enough, says CEO Nick Read, who says Vodafone will be targetting a further €1 billion in operating cost reductions over the next three years. 

 

Vodafone Group is still struggling financially with the fallout of the adjusted gross revenue fiasco taking place in India with its joint venture, Vodafone Idea. Last year, the Group reported a €7.6 billion loss as a result, but they appear to have done a good job in stemming the bleeding, reducing the loss to just €455 million. Vodafone Idea continues to struggle in the subcontinent, but Vodafone Group is loath to inject anymore funds into what could well be a sinking ship.

 

Meanwhile, debt for Vodafone remains a big problem, shooting up to €42.2 billion from around €27 billion. This could eventually be offset by investment in their European tower spin off, which Read has previously estimated as worth $20 billion.

 

As telcos go, Vodafone seems to be faring fairly well during the pandemic, despite their bottom line taking a big hit in line with the rest of the sector. Continual cuts of the magnitude suggested will help keep the company agile in the coming months as the true economic fallout of the pandemic becomes more apparent.