Vodafone Shares Fall After Huge Loss

Shares in the telecoms giant Vodafone rose in early trading today but eventually dropped after the City pondered the company's future after it posted one of the largest losses in global corporate history.

Vodafone today reported pre-tax losses of £13.5bn, including a £6bn fall in the value of companies it bought during the technology boom. The company's losses dwarf those of the stricken telecoms equipment group Marconi, which earlier this month reported losses of £5.7bn as a result of a fall in the value of acquisitions in the US.

City traders initially welcomed the company's strong underlying growth, but shares ended the day 2.1% down.

However, underlying profits mean Vodafone shareholders can expect a dividend of 1.4721p a share, up 5% on the previous year, while chief executive Sir Chris Gent may receive £2m in shares as a bonus payment.

Setting aside the one-off loss, Vodafone reported pre-tax profits of £6.2bn for the year to March 31, up 54% on the previous year. Turnover rose 52% to £22.8bn, while its customer base increased 22% to 101.1 million.

Sir Chris said: "These are excellent results. The bottom line loss could be misleading. This disguises the true performance of the business."

However, the City also expressed concern over the company's future prospects.

The Reuters news agency quoted investment bank Nomura as saying: "We remain concerned on what happens from here. Customer growth is slowing and spending is flat. As competition intensifies, we remain of the view that revenues and margins will come under pressure."

Vodafone said it was taking a goodwill charge of £13.4bn relating to its acquisitions of Japan Telecom, J-Phone and German industrial group Mannesmann.

The group also said it was taking a £6bn impairment charge relating to the value of businesses such as Arcor, Cegetel, Grupo Iusacell and Japan Telecom, meaning it was writing down the value of these investments.

But Vodafone did not write down the value of its £113bn takeover of Mannesmann two years ago, which some analysts had been expecting.

Analysts said the goodwill charge, while pushing the company into loss, would will be largely ignored by the city and reflected an accounting principle to which every company had to adhere. Analysts were focused on the £6bn impairment charge, which came in better than expectations of between £8bn and £20bn.

Sir Chris said: "The past year has seen the group successfully execute its adjusted strategy, delivering very strong operational performance and exceptional financial results, including the generation of substantial free cash flow."

He said that in the current year he expected net customer growth of just below 10%, and double digit revenue growth.

Justin Urquhart Stewart, at Seven Investment Management, said he had expected the group to write off more.

"What they are doing is writing down parts of the landline business but saying - the mobile business we didn't overpay for. I would have expected them to say - here are the big write-offs now, reset the level lower and grow from there."