By Paul Sandle and Kate Holton
LONDON (Reuters) -Vodafone CEO Margherita Della Valle said on Friday she was "changing the face" of the British mobile operator by selling its Italian unit to Swisscom, the final step in her plan to retrench to markets where the company can profitably grow.
Vodafone (LON:VOD)'s long-suffering shareholders will receive 4 billion euros ($4.4 billion) via share buybacks from the Italian sale and a deal agreed last year to exit Spain.
But they will see their dividend payout halve from the financial year starting next month to 4.5 euro cents a share, reflecting the lower cash flow from the smaller footprint.
Vodafone's shares, down 46% in the last two years, rose 6% to 69 pence, giving the company a market value of 18.9 billion pounds ($23.8 billion).
"Going forward, our businesses will be operating in growing telco markets - where we hold strong positions - enabling us to deliver predictable, stronger growth in Europe," Della Valle said.
Investors in Vodafone, the mobile group that expanded across Europe and Africa in the first decade of the century, have been promised better growth for years.
But it has struggled against new entrants in Spain and Italy who have slashed tariffs, and strategic mistakes in its largest market, Germany.
The company said on Friday it would replace the boss of Germany, Philippe Rogge, with Vodafone UK's Ahmed Essam in a new role of Executive Chairman Germany and Chief Executive European Markets.
Della Valle, an Italian who joined Vodafone in the country in 1994 and became the group's chief financial officer in 2018, has not delayed taking action to address underperformance since moving to the top job in April last year, unlike her predecessor who faced criticism for not biting the bullet.
Analysts said the deals in Italy and Spain, plus the cut to the dividend, would improve Vodafone's financial profile, including payout coverage, but they increased the pressure for the German business to improve.
One top 20 shareholder, who spoke on condition of anonymity, said Vodafone had not secured knock out prices for its two assets, and the dividend cut was at the higher end of expectations.
But the investor said the company needed to strip the business back to its core, and start growing again.
By moving at pace, the company and its boss has earned the right to be given more time to show they could now improve operational performance, the investor added.
Vodafone will receive 8 billion euros in cash from the Vodafone Italy deal, the last of three markets Della Valle vowed to tackle less than a year ago.
It agreed last year to sell its Spanish operation to Zegona Communications and merge its British unit with Hutchison's Three UK, leaving it focused on Germany, smaller European countries, Africa and business.
"Our reshaped footprint will give us the opportunity to generate good returns, with an immediate return on capital step up of over one percentage point when the Italian and Spanish transactions complete," Della Valle told reporters.
The company will return 4 billion euros of the proceeds from both deals to investors via share buybacks, and will target a new net debt ratio of 2.25–2.75 times adjusted earnings before interest, taxes and amortisation, after leases, against the current objective of 2.5 times.
Chief Financial Officer Luka Mucic said he would target the lower half of the range.
($1 = 0.9194 euros)
($1 = 0.7846 pounds)