Vodafone takes £28bn financial hit

Intensifying competition in key markets reflects a lower view of growth prospects for Vodafone

Vodafone rattled investors yesterday with the news that it is to write off between £23bn and £28bn in goodwill associated with lower growth prospects of its German, Italian and Japanese businesses.

Goodwill was previously amortised with a charge to the income statement of approximately £13bn per annum, the operator said.

But a backdrop of intensifying competition and pricing pressures in several of its key markets has meant that the increased impairment reflects a lower view of growth prospects, particularly in the medium to long term.

Vodafone chief executive Arun Sarin said that most of the reductions in goodwill will be attributable to Vodafone Germany, which was bought as Mannesmann in 2000 at a time when share prices in the telecoms sector were significantly higher than today.

Increasing competition is also anticipated to cause revenue growth to slow to between five and 6.5 per cent in the year to the end of March 2007, against previous growth forecasts of six to nine per cent for 2006, Sarin added.

"This lower growth rate reflects the increasingly intense competitive environment, continuing regulatory reductions in termination rates and the one-off beneficial impact in the year ending 31 March 2006 of the introduction of mobile-to-mobile termination rates in France," the company said.

Sarin yesterday reiterated that Vodafone has no plans to sell its 45 per cent holding in Verizon Wireless in the US, which it jointly owns with Verizon Communications.