Vodafone's £13.5bn Loss Creates a British Record

Vodafone yesterday recorded a record annual loss of £13.5bn - the largest in British corporate history - as it slashed the value of the companies it acquired during the technology stock boom.

Europe's largest wireless company, however, reported a stronger than expected underlying performance and set itself a number of ambitious growth targets in an effort to dispel the gloom that has surrounded the company since the start of the year.

Shares in Vodafone, which has grown rapidly by buying up rivals including Germany's Mannesmann, recently slumped to their lowest level for four years on worries about the company's ability to generate revenue growth.

Initial reaction from the City to the company's full-year figures, which showed the business made more cash than forecast, was positive yesterday but by the end of the trading day the stock was back in the doldrums.

Christian Maher, at Investec Securities, summed up the mood in the City by saying: "There is no doubt that this company's cost structure and ability to generate cash in excess of the wider mobile sector is still there. The issue seems to be the competitive advantage that its scale affords, and that is going to take some months to assess."

But Vodafone's chief executive, Sir Christopher Gent, promised that the business would achieve double-digit revenue growth during the coming year.

He hit back at his critics in the City, saying: "The results are a case for rejoicing, they are very, very strong. If you look at them they are the financial results of a very good growth company. But the share price values the company as a utility."

There had been intense speculation that Vodafone would reduce the value of its assets by well over £25bn as a result of the slide in telecoms valuations. But Vodafone yesterday said it had not had to take the red pen to its core controlled mobile networks across the world.

Instead, the company cut £6bn from the value of fixed-line businesses it acquired in Japan and Germany as part of other deals.

Although the writedown, coupled with a £13.5bn accounting charge related to deals done in the last two years, plunged the group into the red, Vodafone generated a 44% increase in underlying profits to just over £10bn for the year to the end of March.

The company generated £2.4bn in cash after spending over £4bn on its networks. Vodafone expects to generate a similar amount of free cash in the current year despite increasing its spending budget to £6bn as it rolls out new network technology known as 3G.

Sir Christopher is already one of the City's highest paid directors and yesterday's strong growth in underlying earnings is likely to see him receive the last part of a controversial £10m bonus he was awarded last year after the Mannesmann deal. Following the drop in Vodafone's stock price, that bonus is now worth about £2m.

The National Association of Pension Funds, which forced changes to the original £10m bonus scheme, is understood to be watching Vodafone closely and made it clear last night it would want proof that the deal had boosted shareholder value.