Vodafone shocks investors with £28bn goodwill write-down

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Vodafone prompted anger among investors and increased the already intense pressure on its chief executive Arun Sarin as it yesterday revealed one of the biggest write-offs in UK corporate history.

In the latest blow to the standing of the mobile phone giant, Vodafone said it would wipe up to £28bn from the value of assets in Germany, Italy and Japan. It also cut its revenue forecast - a huge disappointment to the City.

The write-down of goodwill largely relates to the £110bn hostile takeover of Mannesmann in 2000, in a deal engineered by the former chief executive Sir Christopher Gent.

Vodaphone shares closed down 3.25p at 113.75p, leaving the company valued at £69bn.

Amid growing signs of hostility from investors, Mr Sarin was forced to insist he had the full confidence of his board. David Cumming, the head of UK equities at Standard Life, issued a statement that stopped just short of asking for Mr Sarin's head: "This further downward revision to guidance highlights that Vodafone has to review its global strategy in light of continued operational disappointment. The fact that most investment analysts were already expecting Vodafone to miss its own forecasts must be an additional concern to the Vodafone board."

Standard Life has been vocal in its desire to see Vodafone offload its 45 per cent stake in America's Verizon Wireless and give the proceeds to investors. Mr Sarin said that such a move is considered from time to time, though there are no immediate plans.

Vodafone tried to play down Mr Cumming's note, saying that shareholders "have a range of views," with Standard's not necessarily typical.

Robert Grindle at Dresdner Kleinwort Wasserstein said: "It's another incremental worsening of management expectations. It will put Sarin under more pressure."

Vodafone, which has 179 million customers worldwide, tried to present the write-off as little more than an accounting tweak. Its finance director Andy Halford said: "Prices for telecom assets have come down. All that we are doing is reflecting that. It is an accounting charge. It has no cash-flow impact. It doesn't say anything about whether we overpaid or underpaid for assets."

The company had to cut its forecast for revenue growth from the mobile phone market, from a range of 6 to 9 per cent to a more conservative 5 to 6.5 per cent. Philippe Kiewiet de Jonge at ABN Amro called this cut "painful and dramatic".

The goodwill write-down is in the range of £23bn to £28bn, with the final number to be announced later.

None of the damage relates to the UK business, though Vodafone acknowledged competition from players such as Tesco and T-Mobile. Its key problem seems to be poorer sales of 3G services than expected.

Until yesterday, there was £81.5bn of goodwill - in effect the difference between the value of the tangible assets and the amount paid for acquisitions - on the balance sheet.