Luka Mucic is the Chief Financial Officer of Vodafone (LSE:VOD), the FTSE 100 telecoms giant. He was appointed in July 2023, having held the same position at SAP for nearly 10 years. Shareholders will be hoping his time at the company will be equally successful. SAP’s share price increased nearly 90% during Mucic’s tenure.
On 15 March, Mucic bought 2.46m shares in Vodafone, at a cost of £1.71m. That was the same day his employer announced it had entered into a binding agreement to sell its business in Italy. And — whisper it quietly — revealed a 50% cut in its dividend.
Mucic’s base salary is £760k. And even though he could earn a bonus up to 200% of this, and is party to a long-term incentive plan that could net him another 450%, spending such a large sum on the company’s shares shows great commitment. Nobody — no matter how wealthy they are — wants to lose money.
A drop in income
But he’s not going to receive as much dividend income as he would have done a year ago.
That’s because, although the company plans to pay €0.09 euro cents a share in respect of the year ended 31 March 2024 (FY24), its dividend will be “rebased” to €0.045 euro cents, for the next two financial years.
To compensate for the 50% cut, Vodafone plans €4bn of share buybacks. Half will be spent when the deal to sell its Spanish division is concluded. The balance will be deployed when Italy goes. If all runs to plan, €2bn will be spent purchasing the company’s shares in both FY25 and FY26.
Vodafone anticipates the return to shareholders in FY25 will be 23% more than in FY24. But my preference would be for the company’s payout to be maintained at its present level. And any additional surplus cash be returned to shareholders via special dividends.
Reduced earnings
Personally, I think it’s a good idea to sell its Mediterranean divisions. The cost of funding their operations is more than the return they generate. The company claims its return on capital employed will improve by “more than” one percentage point as a result of the disposals.
Another benefit of the downsizing is that it looks as though the company is going to use around €8bn to reduce its enormous borrowings. As well as saving interest, it’s hoped this will bring its net debt position closer to 2.25 times earnings, helping to improve its credit rating.
But Vodafone will be much smaller as a result. It will lose around €2bn of EBITDAaL (earnings before interest, tax, depreciation, and amortisation, after leases).
However, the reduction in the number of shares means earnings per share should increase. This is an important metric for the remuneration packages of senior management. Presently, its EBITDAaL per share is 0.491 euro cents. Assuming the share price remains unchanged — and earnings in other parts of the business are maintained — post-restructuring these could be 0.503 euro cents (FY25) and 0.513 euro cents (FY26).
As a fellow shareholder, my interests and those of Mucic are now perfectly aligned. I’m reassured that he will be doing everything he can to grow the value of our investments. I just wish he’d maintained the dividend at is present level rather than worry about improving earnings per share.
